<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
- --------------------------------------------------------------------------------
(Mark One)
(x) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended January 31, 1998
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission file number 1-3381
The Pep Boys - Manny, Moe & Jack
------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0962915
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3111 West Allegheny Avenue, Philadelphia, PA 19132
- -------------------------------------------- ---------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code 215-229-9000
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $1.00 par value New York Stock Exchange
4% Convertible Subordinated
Notes due September 1, 1999 New York Stock Exchange
Liquid Yield Option Notes
due September 20, 2011 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Yes No X
----- -----
As of the close of business on April 10, 1998, the aggregate market value of the
voting stock held by nonaffiliates of the registrant was approximately
$1,199,527,000.
As of April 10, 1998, there were 63,753,581 shares of the registrant's common
stock outstanding.
2
<PAGE>
This Annual Report on Form 10-K contains "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Readers are cautioned that such forward looking statements involve risks and
uncertainties which could cause actual results to materially differ from those
expressed in any such forward looking statements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Forward Looking
Statements."
3
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PART III Portions of the registrant's definitive proxy statement, which will be
filed with the commission pursuant to Regulation 14A not later than 120
days after the end of the Company's fiscal year, for the Company's
Annual Meeting of Shareholders presently scheduled to be held on June
3, 1998.
4
<PAGE>
This Annual Report on Form 10-K for the year ended January 31, 1998, at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities on or after the date of such filing, pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of 1933 which
incorporates by reference this Annual Report.
5
<PAGE>
PART I
ITEM 1 BUSINESS
GENERAL
The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is a
leading automotive retail and service chain. The Company is engaged principally
in the retail sale of automotive parts and accessories, automotive maintenance
and service and the installation of parts. As of January 31, 1998, the Company
operated 711 stores which consists of 591 SUPERCENTERS and one SERVICE & TIRE
CENTER, having an aggregate of 6,208 service bays, and 119 PEP BOYS EXPRESS
(formerly called PARTS USA) stores. The Company operates approximately
13,405,000 gross square feet of retail space, including service bays. The
SUPERCENTERS average approximately 20,800 square feet and the PEP BOYS EXPRESS
stores average approximately 9,400 square feet. The Company believes it is well
positioned to gain market share and to increase profitability by serving the
"do-it-yourself," "do-it-for-me" and "buy-for-resale" customer segments with the
highest quality merchandise and service at a good value.
6
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As of January 31, 1998, the Company operated its stores in 33 states,
the District of Columbia and Puerto Rico. The following table indicates by state
the number of stores of the Company in operation at the end of fiscal 1994,
1995, 1996 and 1997 and the number of stores opened and closed by the Company
during each of the last three fiscal years:
<TABLE>
<CAPTION>
NUMBER OF STORES AT END OF FISCAL YEARS 1994 THROUGH 1997
1994 1995 1996 1997
Year Year Year Year
State End Opened Closed End Opened Closed End Opened Closed End
- ----- --- ------ ------ --- ------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama 1 - - 1 - - 1 - - 1
Arizona 24 - - 24 - 1 23 1 - 24
Arkansas 1 - - 1 - - 1 - - 1
California 102 17 1 118 29 1 146 10 - 156
Colorado 5 1 - 6 2 - 8 - - 8
Connecticut - 2 - 2 5 - 7 2 - 9
Delaware 5 - - 5 - - 5 1 - 6
District of Columbia - 2 - 2 1 - 3 2 - 5
Florida 34 4 - 38 4 - 42 9 - 51
Georgia 20 2 - 22 3 - 25 1 - 26
Illinois 13 4 - 17 4 - 21 11 - 32
Indiana 1 2 - 3 3 - 6 6 - 12
Kansas 2 - - 2 - - 2 - - 2
Kentucky 3 1 - 4 - - 4 - - 4
Louisiana 12 - - 12 - - 12 - - 12
Maryland 16 3 1 18 2 - 20 5 2 23
Massachusetts 3 2 - 5 4 - 9 2 - 11
Michigan 1 5 - 6 5 - 11 6 - 17
Missouri 1 - - 1 - - 1 - - 1
Nevada 8 - - 8 - - 8 2 - 10
New Hampshire 1 - - 1 1 - 2 2 - 4
New Jersey 15 3 - 18 8 - 26 8 - 34
New Mexico 8 - - 8 - - 8 - - 8
New York 11 3 - 14 13 - 27 19 - 46
North Carolina 11 - - 11 - - 11 - - 11
Ohio 9 1 - 10 3 - 13 1 - 14
Oklahoma 6 - - 6 - - 6 - - 6
Pennsylvania 34 8 2 40 3 - 43 8 1 50
Puerto Rico - 7 - 7 4 - 11 10 - 21
Rhode Island 1 - - 1 2 - 3 1 - 4
South Carolina 6 - - 6 - - 6 - - 6
Tennessee 7 - - 7 - - 7 - - 7
Texas 55 8 - 63 2 - 65 - - 65
Utah 6 - - 6 - - 6 - - 6
Virginia 13 - - 13 2 - 15 3 - 18
--- --- -- ---- --- -- --- ---- -- ----
Total 435 75 4 506 100 2 604 110 3 711
=== == == === === == === === == ===
</TABLE>
7
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NEW STORES AND EXPANSION STRATEGY
During fiscal 1997, the Company opened 70 SUPERCENTERS, all of which
include service bays, 39 PEP BOYS EXPRESS stores and one SERVICE & TIRE CENTER.
Two outmoded units were closed and replaced by SUPERCENTERS and one PARTS USA
store was closed.
The Company's typical SUPERCENTER is a free standing, "one-stop"
shopping automotive warehouse that features state-of-the-art service bays. Each
SUPERCENTER carries an average of approximately 28,000 stock-keeping units and
serves the automotive aftermarket needs of the "do-it-yourself," the
"do-it-for-me" and the "buy-for-resale" customer segments. Late in 1996, a new
SUPERCENTER prototype was introduced reducing overall size to approximately
18,200 square feet while offering the same number of stock-keeping units and
increasing the number of service bays to 12. The Company intends to continue to
utilize this new prototype in fiscal 1998.
PEP BOYS EXPRESS stores generally operate in certain urban locations
that the Company believes will be better served by stores with an extensive
selection of parts and accessories (an average of approximately 27,000
stock-keeping units per store) but without tires or service bays. PEP BOYS
EXPRESS stores primarily serve the automotive aftermarket needs of the
"do-it-yourself" and the "buy-for-resale" customer segments. PEP BOYS EXPRESS
stores average approximately 9,400 square feet.
The Company has established a commercial parts delivery business to
increase its market share with the professional installer. This will strengthen
the Company's position in the "buy-for-resale" customer segment by taking
greater advantage of the breadth and quality of its parts inventory as well as
its experience supplying its own service bays and mechanics. As of January 31,
1998, 262 of the Company's stores provide parts delivery, and by the end of the
second quarter of fiscal 1998, the Company expects to provide parts delivery
from all of its suitable stores, representing approximately 80 % of its chain.
8
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In fiscal 1998, the Company plans to slow down its store expansion by
opening approximately 40 new stores. If all 40 stores are opened, the Company
anticipates spending approximately $66,200,000 in addition to the $13,198,000 it
has already spent as of January 31, 1998 in connection with certain of these
locations. Additionally in fiscal 1998, the Company anticipates spending
approximately $19,200,000 on certain stores it expects to open in fiscal 1999.
The Company expects to fund this expansion from net cash generated by operating
activities, and if necessary from unused lines of credit or from accessing
traditional lending sources which may include the public capital markets.
The most important factors considered by the Company when deciding to
open new stores are vehicle and population demographics, competitive positioning
and site development costs. The most important factors considered by the Company
when deciding whether to close a store are profitability and whether the store
is outmoded by virtue of store size, location and surroundings, number of
service bays, number of other stores within the same market area and the
cost/benefit of establishing a replacement store rather than expanding or
otherwise upgrading an older store.
The Company's ability to meet its expansion goals will depend, in large
measure, upon the availability of suitable sites, prevailing economic
conditions, its success in completing negotiations to purchase or lease
properties, and its ability to obtain governmental approvals and meet
construction deadlines.
MERCHANDISING
Each Pep Boys SUPERCENTER and PEP BOYS EXPRESS store carries the same
basic product line, with variations based on the number and type of cars
registered in the different markets. A full complement of inventory at a
SUPERCENTER and a PEP BOYS EXPRESS store currently includes an average of
approximately 28,000 and 27,000 items, respectively. The Company's automotive
product line includes: tires (not stocked at PEP BOYS EXPRESS locations);
batteries; new and rebuilt parts for domestic and imported cars, including
suspension parts, ignition parts, mufflers, engines and engine parts, oil and
air filters, belts, hoses, air conditioning parts, and brake parts; chemicals,
including oil, antifreeze, polishes, additives, cleansers and paints; mobile
electronics, including sound systems, alarms, remote vehicle starters and global
positioning systems; car accessories, including seat covers, floor mats, gauges,
mirrors and booster cables; a full line of hand tools including sockets,
wrenches, ratchets, paint and body tools, jacks and lift equipment, automotive
specialty tools and test gauges; as well as a large selection of truck, van and
sport utility vehicle accessories.
In addition to offering a wide variety of high quality, branded
products, the Company sells an array of high quality products under the Pep Boys
and various other private label names. The Company sells cleaners and chemicals
under the Pep Boys name. The Company also sells oil, oil treatments, hand
cleaner, air filters, oil filters, transmission fluids and lubricants under the
name PROLINE (R) and paints under the name VARSITY (R). The Company sells
starters and alternators under the name PROSTART (R), water pumps under the name
PROCOOL (R) and batteries under the names PRO-START (R), MASTER START (tm) and
RIGHT START (tm). Brakes are sold under the names SHUR GRIP (R), PROSTOP (R) and
ELITE (tm) and tires under the names CORNELL (R) and FUTURA (R).
9
<PAGE>
The Company also sells shock absorbers under the name PRO RYDER (R), and trunk
and hatchback lift supports under the name PROLIFT (R). All products sold by the
Company under the Pep Boys and various other private label names accounted for
approximately 25% of the Company's merchandise sales in fiscal 1997. The
remaining merchandise is sold under the brand names of others. Except for
revenues from maintaining or repairing automobiles and installing products,
which accounted for approximately 16.3%, 15.0% and 15.0% of the Company's total
revenues in fiscal years 1997, 1996 and 1995, respectively, no class of products
or services accounted for as much as 10% of the Company's total revenues.
The Company has a point-of-sale system in all of its stores which
gathers sales and gross profit data by stock-keeping unit from each store on a
daily basis. This information is then used by the Company to help formulate its
pricing, marketing and merchandising strategies.
The Company has an electronic parts catalog in all of its stores and an
electronic commercial invoicing system in all of its stores that offer
commercial parts delivery.
The Company has an electronic work order system in all of its service
centers. This system creates a service history for each vehicle, provides
customers with a comprehensive, professional sales document and has enabled the
Company to establish a service customer database.
The Company uses an "Everyday Low Price" (EDLP) strategy in
establishing its selling prices. Management believes that EDLP provides better
value to its customers on a day-to-day basis, helps level customer demand and
allows more efficient management of inventories.
The Company uses various forms of advertising to promote its category
dominant product offering, its state-of-the-art automotive service and repair
capabilities and its commitment to customer service and satisfaction. The
Company's advertising vehicles include, but are not limited to, multi-page
catalogs, television and radio commercials, newspaper advertisements and various
in-store promotions. All or most of the gross cost of the advertising directed
by the Company is customarily borne by the suppliers of the products advertised.
In fiscal 1997, approximately 64% of the Company's total revenues were
cash transactions (including personal checks), and the remainder were credit and
debit card transactions, and commercial credit accounts.
The Company does not experience significant seasonal fluctuation in the
generation of its revenues.
STORE OPERATIONS AND MANAGEMENT
All Pep Boys stores are open seven days a week. Each SUPERCENTER has a
manager, a service manager, a parts manager and two or more assistant managers.
Each PEP BOYS EXPRESS store has a manager, a parts manager and two or more
assistant managers. A store manager's average length of service with the Company
is approximately six years.
The Company has service bays in 592 of its 711 locations. Each service
department can perform a variety of services which include: engine diagnosis and
tune-ups, wheel and front end alignments, state inspection and emission
services, air conditioning service, heating and cooling system service, fuel
injection and throttle body service, battery and electrical service; the repair
and
10
<PAGE>
installation of parts and accessories including brake parts, suspension parts,
exhaust systems, front end parts, ignition parts, belts, hoses, clutches,
filters, stereos and speakers, alarms, sunroofs, cruise controls, global
positioning systems, remote starters and various other merchandise sold in Pep
Boys' stores; installation and balancing of tires, and oil and lubrication
services.
The Company coordinates the operation and merchandising of each store
through a network of district and regional managers. The regional managers
report to one of three divisional Vice Presidents - Store Operations and one
Vice President Service Operations, who report to the Company's Senior Vice
President - Store Operations, who reports to the Company's Chairman of the
Board, President & Chief Executive Officer. Supervision and control over the
individual stores are facilitated by means of the Company's computer system,
operational handbooks and regular visits to the individual stores by the
district operations managers and loss prevention personnel.
All of the Company's advertising, accounting, purchasing and most of
its management information systems and administrative functions are conducted at
its corporate headquarters in Philadelphia, Pennsylvania. Certain of the
Company's management information system functions are conducted at a regional
office located near its corporate headquarters. Certain administrative functions
for the Company's western, southwestern, southeastern, midwest and Puerto Rico
operations are performed at various regional offices of the Company. See
"Properties."
INVENTORY CONTROL AND DISTRIBUTION
Almost all of the Company's merchandise is distributed to its stores
from its warehouses primarily by dedicated carriers and also by Company-owned or
leased trucks. Target levels of inventory for each product have been established
for each of the Company's warehouses and stores and are based upon prior
shipment history, sales trends and seasonal demand. Inventory on hand is
compared to the target levels on a weekly basis at each warehouse. If the
inventory on hand at a warehouse is below the target levels, the Company's
buyers order merchandise from its suppliers.
Each Pep Boys store has an automatic inventory replenishment system
that automatically orders additional inventory when a store's inventory on hand
falls below the target level. In addition, the Company's centralized buying
system, coupled with continued advancement in its warehouse and distribution
systems, has greatly enhanced the Company's ability to control its inventory.
SUPPLIERS
During fiscal 1997, the Company's ten largest suppliers accounted for
approximately 40% of the merchandise purchased by the Company. No single
supplier accounted for more than 12% of the Company's purchases. The Company has
no long-term contracts for the purchase of merchandise. Management believes that
the relationships the Company has established with its suppliers are generally
good.
In the past, the Company has not experienced difficulty in obtaining
satisfactory sources of supply and believes that adequate alternative sources of
supply exist, at substantially similar cost, for virtually all types of
merchandise sold in its stores.
11
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COMPETITION
The business of the Company is generally highly competitive. The
Company encounters competition from nationwide and regional chains and from
local independent merchants. Some of the Company's competitors are general, full
range, discount or traditional department stores which carry automotive parts
and accessories and/or have automotive service centers, and others, similar to
the Company, are specialized automotive service retailers. Certain of its
competitors are larger in terms of sales volume, store size, and/or number of
stores, have access to greater capital and management resources and have been
operating longer in particular geographic areas than the Company.
Although the Company's competition varies by geographic area, the
Company believes that it generally has a favorable competitive position in terms
of depth and breadth of product line, price, quality of personnel and customer
service.
In addition, the Company believes that its operation of service bays in
its SUPERCENTERS positively differentiates it from most of its competitors by
providing its customers with the ability to purchase parts and have them
installed at the same location. The Company believes that the warranty policies
in connection with the higher priced items it sells, such as tires, batteries,
brake linings and other major automotive parts and accessories, are comparable
or superior to those of its competitors.
EMPLOYEES
At January 31, 1998, the Company employed 24,203 persons as follows:
<TABLE>
<CAPTION>
Full-time Part-time Total
Description Numbers % Numbers % Numbers %
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Store Sales 8,023 44.2 4,274 70.7 12,297 50.8
Store Service 7,703 42.4 1,498 24.8 9,201 38.0
------- ----- ----- ----- ------- -----
STORE TOTAL 15,726 86.6 5,772 95.5 21,498 88.8
Warehouses 1,103 6.1 239 4.0 1,342 5.6
Offices 1,331 7.3 32 .5 1,363 5.6
------- ------ ------- ------- ------- ------
TOTAL EMPLOYEES 18,160 100.0 6,043 100.0 24,203 100.0
====== ===== ===== ===== ====== =====
</TABLE>
Of the 1,342 full-time and part-time warehouse employees referred to
above, 325 employees at the Company's New Jersey warehouse facilities are
members of a union. The Company believes employee relations are generally good.
At the end of fiscal 1996, the Company employed approximately 15,502 full-time
and 4,987 part-time employees and at the end of fiscal 1995, the Company
employed approximately 13,186 full-time and 4,405 part-time employees.
12
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ITEM A EXECUTIVE OFFICERS OF THE COMPANY
The following table indicates the names, ages, years with the Company
and positions (together with the year of election to such positions) of the
executive officers of the Company:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years with Position with the Company and
Name Age Company Date of Election to Position
- ---- --- ------- ----------------------------
<S> <C> <C> <C>
Mitchell G. Leibovitz 52 19 Chairman of the Board since
March 1994; Chief Executive
Officer since March 1990;
President since 1986
Michael J. Holden 46 18 Executive Vice President
since March 1996; Senior Vice
President & Chief Financial
Officer since March 1987
J. Michael Riggan 48 - Senior Vice President -
Merchandising and Marketing
since November 1997
Mark L. Page 41 22 Senior Vice President - Store
Operations since March 1993
Ronald J. McEvoy 50 1 Senior Vice President & Chief
Information Officer since February
1997
Frederick A. Stampone 42 15 Senior Vice President
since March 1987; Chief
Administrative Officer since
March 1993; Secretary since
December 1988
</TABLE>
Messrs. Leibovitz, Holden and Stampone have been executive officers of the
Company for more than the past five years. Mr. Page was a regional manager for
the Company from February 1987 until February 1991 when he was elected Vice
President - Western Store Operations. On March 14, 1993, Mr. Page became Senior
Vice President - Store Operations. Mr. McEvoy was Senior Vice President and
Chief Information Officer for Fred Meyer, Inc. from May 1990 until February 1997
when he joined Pep Boys as Senior Vice President and Chief Information Officer.
Mr. Riggan served as Executive Vice President of PetCare Plus, Inc. from
November 1991 until November 1997 when he became Senior Vice President -
Merchandising and Marketing for Pep Boys. Each of the officers serves at the
pleasure of the Board of Directors of the Company.
13
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ITEM 2 PROPERTIES
The Company owns its five-story, approximately 300,000 square foot
corporate headquarters in Philadelphia, Pennsylvania. The Company also owns the
following administrative regional offices -- a three-story, approximately 60,000
square foot structure in Los Angeles, California of which it occupies
approximately 35,000 square feet and approximately 4,000 square feet of space in
each of Melrose Park, Illinois and Bayamon, Puerto Rico. In addition, the
Company leases approximately 4,000 square feet of space for administrative
regional offices in each of Decatur, Georgia and Richardson, Texas.
Of the 711 store locations operated by the Company at January 31, 1998,
374 are owned and 337 are leased. Of the 337 leased store locations, 189 are
ground leases.
14
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The following table sets forth certain information regarding the owned
and leased warehouse space utilized by the Company for its 711 store locations
at January 31, 1998.
<TABLE>
<CAPTION>
Warehouse Products Square Owned or Stores States
Location Warehoused Footage Leased Serviced Serviced
- -------- ---------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Los Angeles, CA All except 216,000 Owned 121 AZ, CA
tires
Los Angeles, CA Tires 73,000 Leased 91 AZ, CA
Los Angeles, CA All except 137,000 Leased 121 AZ, CA
tires
Phoenix, AZ All except 108,000 Owned 60 AZ, CO, NM,
tires and NV, TX, UT
chemicals
Phoenix, AZ Tires and 56,000 Leased 60 AZ, CO, NM,
chemicals NV, TX, UT
Bridgeport, NJ All except 195,000 Owned 188 CT, DC, DE,
tires MA, MD, NH,
NJ, NY, PA,
PR, RI, VA
Bridgeport, NJ Tires and 273,000 Leased 188 CT, DC, DE,
chemicals MA, MD, NH,
NJ, NY, PA,
PR, RI, VA
Atlanta, GA All 392,000 Owned 123 AL, FL, GA,
NC, PR, SC,
TN, VA
Mesquite, TX All 244,000 Owned 80 AR, KS, LA,
MO, OK, TX
Plainfield, IN All 403,000 Leased 101 IL, IN, KY,
MI, NY, OH,
PA
Tracy, CA All 246,250 Leased 38 CA, NV
----------
Total 2,343,250
==========
</TABLE>
To meet its current expansion requirements the Company plans to open a
400,000 square foot, leased warehouse facility in Chester, New York in late 1998
or early 1999.
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The Company anticipates that its existing and planned warehouse space
will accommodate inventory necessary to support store expansion and any increase
in stock-keeping units through the end of fiscal 1999.
The Company is subject to federal, state and local provisions relating
to the protection of the environment, including provisions with respect to the
disposal of oil at its store locations. Estimated capital expenditures relating
to compliance with such environmental provisions are not deemed material.
ITEM 3 LEGAL PROCEEDINGS
The Company is a defendant in a purported class action entitled "Brian
Lee, Anthony Baxton, and Harry Schlein v. The Pep Boys - Manny, Moe & Jack," in
the Circuit Court of Mobile County, Alabama. The Company has moved to dismiss
the case for failure to state a claim. The Company's motion to dismiss is
pending before the Circuit Court of Mobile County, Alabama. In their complaint,
the plaintiffs allege that the Company sold old or used automotive batteries to
consumers as if those batteries were new. The complaint purports to state causes
of action for fraud and deceit, negligent misrepresentation, breach of contract
and violation of state consumer protection statutes. The plaintiffs are seeking
compensatory and punitive damages, as well as injunctive and equitable relief.
The Company believes the claims are without merit and intends to vigorously
defend this action.
The Company is also party to various other lawsuits and claims arising
in the normal course of business. In the opinion of management, these lawsuits
and claims, including the case above, are not singularly or in the aggregate,
material to the Company's financial position or results of operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended January 31, 1998.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of The Pep Boys - Manny, Moe & Jack is listed on the
New York Stock Exchange under the symbol "PBY". There were 4,368 registered
shareholders as of January 31, 1998. The following table sets forth for the
periods listed, the high and low sale prices and the cash dividends paid on the
Company's common stock.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MARKET PRICE PER SHARE
Market Price Per Share Cash Dividends
Fiscal year ended January 31, 1998 High Low Per Share
- ---------------------------------- ---- --- ---------
<S> <C> <C> <C>
First Quarter 35 29 3/8 $.0600
Second Quarter 35 5/8 30 .0600
Third Quarter 34 7/8 23 5/8 .0600
Fourth Quarter 26 3/16 21 9/16 .0600
Fiscal year ended February 1, 1997
- ---------------------------------
First Quarter 34 7/8 27 7/8 $.0525
Second Quarter 35 1/2 28 .0525
Third Quarter 38 1/4 30 3/4 .0525
Fourth Quarter 38 27 7/8 .0525
</TABLE>
It is the present intention of the Company's Board of Directors to continue to
pay regular quarterly cash dividends; however, the declaration and payment of
future dividends will be determined by the Board of Directors in its sole
discretion and will depend upon the earnings, financial condition and capital
needs of the Company and other factors which the Board of Directors deems
relevant.
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ITEM 6 SELECTED FINANCIAL DATA
The following tables sets forth the selected financial data for the Company and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere herein.
SELECTED FINANCIAL DATA (UNAUDITED)
(dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended Jan. 31, 1998 Feb. 1, 1997 Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF EARNINGS DATA
<S> <C> <C> <C> <C> <C>
Merchandise sales $ 1,720,670 $ 1,554,757 $ 1,355,008 $ 1,211,536 $ 1,076,543
Service revenue 335,850 273,782 239,332 195,449 164,590
Total revenues 2,056,520 1,828,539 1,594,340 1,406,985 1,241,133
Gross profit from merchandise sales 474,239(1) 484,494 411,133 364,378 307,861
Gross profit from service revenue 66,081 53,025 44,390 32,417 27,457
Total gross profit 540,320(1) 537,519 455,523 396,795 335,318
Selling, general and
administrative expenses 430,517(1) 350,419 296,089 247,872 214,710
Operating profit 109,803(1) 187,100 159,434 148,923 120,608
Nonoperating income 5,309 2,435 2,090 3,490 3,601
Interest expense 39,656 30,306 32,072 25,931 19,701
Earnings before income taxes
and accounting change 75,456(1) 159,229 129,452 126,482 104,508
Earnings before accounting change 49,611(1) 100,824 81,494 80,008 65,512
Accounting change - - - (4,300) -
Net earnings 49,611(1) 100,824 81,494 75,708 65,512
BALANCE SHEET DATA
Working capital $ 151,340 $ 70,691 $ 39,868 $ 121,858 $ 92,518
Current ratio 1.24 to 1 1.13 to 1 1.09 to 1 1.42 to 1 1.37 to 1
Merchandise inventories $ 655,363 $ 520,082 $ 417,852 $ 366,843 $ 305,872
Property and equipment-net 1,377,749 1,189,734 1,014,052 861,910 723,452
Total assets 2,161,360 1,818,365 1,500,008 1,291,019 1,078,518
Long-term debt (includes
all convertible debt) 646,641 455,665 367,043 380,787 253,000
Stockholders' equity 822,635 778,091 665,460 586,253 547,759
DATA PER COMMON SHARE
Basic earnings before accounting
change(2) $ .81(1) $ 1.67 $ 1.37 $ 1.35 $ 1.08
Basic earnings(2) .81(1) 1.67 1.37 1.28 1.08
Diluted earnings before accounting
change(2) .80(1) 1.62 1.34 1.32 1.06
Diluted earnings(2) .80(1) 1.62 1.34 1.25 1.06
Cash dividends .24 .21 .19 .17 .15
Stockholders' equity 12.92 12.33 10.72 9.53 8.97
Common share price range:
high-low 35 5/8 - 21 9/16 38 1/4 - 27 7/8 34 3/4 - 21 7/8 36 7/8 - 26 27 1/2 - 20 1/2
OTHER STATISTICS
Return on average
stockholders' equity 6.2% 14.0% 13.0% 13.4% 12.4%
Common shares outstanding 63,657,728 63,119,491 62,084,021 61,501,679 61,060,055
Capital expenditures $ 284,084 $ 245,246 $ 205,913 $ 185,072 $ 135,165
Number of retail outlets 711 604 506 435 386
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes pretax charges of $28,012 ($18,418 net of tax or $.30 per
share-basic and diluted), $16,330 of which reduced gross profit from
merchandise sales with the remaining $11,682 included in selling, general
and administrative expenses. These charges were associated with closing nine
stores, reducing the store expansion program, converting all Parts USA
stores to The Pep Boys Express format, certain equipment write-offs,
severance and other non-recurring expenses.
(2) All data per common share for the years ended February 1, 1997 and prior
have been restated to reflect the adoption of Statement of Financial
Accounting Standards No. 128 "Earnings per Share."
18
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in the
consolidated statements of earnings as a percentage of total revenues (except as
otherwise provided) and the percentage change in dollar amounts of such items
compared to the indicated prior period.
<TABLE>
<CAPTION>
Percentage of Total Revenues Percentage Change
- ------------------------------------------------------------------------------------------------------------------------------------
Jan. 31, 1998 Feb. 1, 1997 Feb. 3, 1996 Fiscal 1997 vs. Fiscal 1996 vs.
Year ended (Fiscal 1997) (Fiscal 1996) (Fiscal 1995) Fiscal 1996 Fiscal 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Merchandise Sales 83.7% 85.0% 85.0% 10.7% 14.7%
Service Revenue(1) 16.3 15.0 15.0 22.7 14.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues 100.0 100.0 100.0 12.5 14.7
- ------------------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales(2) 72.4(3) 68.8(3) 69.7(3) 16.5 13.4
Costs of Service Revenue(2) 80.3(3) 80.6(3) 81.5(3) 22.2 13.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 73.7 70.6 71.4 17.4 13.4
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 27.6(3) 31.2(3) 30.3(3) (2.1) 17.8
Gross Profit from Service Revenue 19.7(3) 19.4(3) 18.5(3) 24.6 19.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 26.3 29.4 28.6 .5 18.0
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses 21.0 19.2 18.6 22.9 18.3
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit 5.3 10.2 10.0 (41.3) 17.4
Nonoperating Income .3 .1 .1 118.0 16.5
Interest Expense 1.9 1.6 2.0 30.9 (5.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 3.7 8.7 8.1 (52.6) 23.0
- ------------------------------------------------------------------------------------------------------------------------------------
Income Taxes 34.3(4) 36.7(4) 37.0(4) (55.7) 21.8
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings 2.4 5.5 5.1 (50.8) 23.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Service revenue consists of the labor charge for installing merchandise or
maintaining or repairing vehicles, excluding the sale of any installed parts
or materials.
(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include
service center payroll and related employee benefits and service center
occupancy costs. Occupancy costs include utilities, rents, real estate and
property taxes, repairs and maintenance and depreciation and amortization
expenses.
(3) As a percentage of related sales or revenue, as applicable.
(4) As a percentage of earnings before income taxes.
19
<PAGE>
FISCAL 1997 vs. FISCAL 1996
Total revenues for fiscal 1997 increased 12.5% over fiscal 1996 due to
a higher store count (711 at January 31, 1998 compared with 604 at February 1,
1997) offset, in part, by a 0.4% decrease in comparable store revenues (revenues
generated by stores in operation during the same months of each period).
Comparable store merchandise sales decreased 2.3% while comparable service
revenue increased 10.3%.
During fiscal 1997 the Company recorded pretax charges of $28,012,000
($18,418,000 net of tax), $16,330,000 of which was recorded as Costs of
Merchandise Sales and includes the costs associated with closing nine stores,
converting all Parts USA stores to the Pep Boys Express format, certain
equipment write-offs and other non-recurring expenses. The remaining $11,682,000
of these expenses, which include costs associated with reducing the store
expansion program, certain equipment write-offs and other non-recurring
expenses, have been included in Selling, General and Administrative Expenses.
The substantial decrease in gross profit from merchandise sales, as a
percentage of merchandise sales, was due primarily to significantly lower
merchandise margins, significantly higher store occupancy costs and the
$16,330,000 pretax charge.
The dramatic increase in selling, general and administrative expenses,
as a percentage of total revenues, was due primarily to a substantial increase
in store expenses, an increase in general office costs and the $11,682,000
pretax charge.
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 offset, in part, by slightly
lower interest rates.
Net earnings in fiscal 1997, which were negatively impacted by the
after tax charges of $18,418,000, decreased substantially as compared with
fiscal 1996, 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 dramatic 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.
FISCAL 1996 vs. FISCAL 1995
Total revenues for fiscal 1996, which included 52 weeks, increased
14.7% over fiscal 1995, which included 53 weeks, due to a higher store count
(604 at February 1, 1997 compared with 506 at February 3, 1996) coupled with a
4.3% increase in comparable store revenues (revenues generated by stores in
operation during the same months of each period). Comparable store merchandise
sales increased 3.9% while comparable store service revenue increased 6.4%.
The increase in gross profit from merchandise sales, as a percentage of
merchandise sales, was due primarily to significantly higher merchandise margins
and a decrease in warehousing costs offset, in part, by an increase in store
occupancy costs.
20
<PAGE>
The increase in gross profit from service revenue, as a percentage of
service revenue, was due primarily to a decrease in service center employee
benefits expense.
The increase in selling, general and administrative expenses, as a
percentage of total revenues, was due primarily to increases in store expenses
and general office costs.
Interest expense decreased, as a percentage of total revenues, due
primarily to lower interest rates, partially offset by higher debt levels
incurred to fund the Company's store expansion program.
The 23.7% increase in net earnings in fiscal 1996, as compared with
fiscal 1995, was due primarily to increases in total and comparable store
revenues, a substantial increase in gross profit from merchandise sales, as a
percentage of merchandise sales, an increase in gross profit from service
revenue, as a percentage of service revenue, and lower interest expense, as a
percentage of total revenues offset, in part, by higher selling, general and
administrative expenses, as a percentage of total revenues.
EFFECTS OF INFLATION
The Company uses the LIFO method of inventory valuation. Thus, the cost
of merchandise sold approximates current cost. Although the Company cannot
accurately determine the precise effect of inflation on its operations, it does
not believe inflation has had a material effect on revenues or results of
operations during fiscal 1997, fiscal 1996 or fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise principally from the need to
finance the acquisition, construction and equipping of new stores and to
purchase inventory. The Company opened 110 stores in fiscal 1997, 100 stores in
fiscal 1996 and 75 stores in fiscal 1995. In fiscal 1997, with increased levels
of capital expenditures and net inventory, the Company increased its debt by
$174,999,000. In fiscal 1996, with increased levels of capital expenditures, the
Company increased its debt by $43,550,000. In fiscal 1995, with an increase in
cash from operating activities, the Company decreased its debt by $22,507,000.
21
<PAGE>
<TABLE>
<CAPTION>
The following table indicates the Company's principal cash requirements for the past three years.
(dollar amounts Fiscal Fiscal Fiscal
in thousands) 1997 1996 1995 Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Requirements:
Capital expenditures $284,084 $245,246 $205,913 $735,243
Net inventory
increase (decrease)(1) 63,764 (12,782) (71,351) (20,369)
- --------------------------------------------------------------------------------------------------------------
Total $347,848 $232,464 $134,562 $714,874
- --------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities
(excluding the change
in net inventory) $180,721 $169,811 $159,968 $510,500
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net inventory increase (decrease) is the change in inventory less the
change in accounts payable.
Inventories have increased in the past three years as the Company added
a net of 276 stores while the average number of stock-keeping units per store
rose during the period from approximately 25,000 to approximately 28,000, many
of which are higher cost hard parts.
The Company currently plans to open approximately 40 new stores in
fiscal 1998. Management estimates that the cost to open all 40 stores, coupled
with capital expenditures relating to existing stores, warehouses and offices
during fiscal 1998, will be approximately $184,000,000. This slower store
expansion program coupled with the Company's plans to reduce inventory levels is
expected to generate net cash from operating activities in excess of its cash
requirements in fiscal 1998. The Company expects to fund anticipated fiscal 1998
capital expenditures from net cash generated from operating activities, and if
necessary from unused lines of credit (which totaled $247,000,000 at January 31,
1998), or from accessing traditional lending sources which may include the
public capital markets.
On April 21, 1995, the Company amended and restated a revolving credit
agreement it had with several major banks to increase the amount of borrowings
provided from up to $100,000,000 to up to $200,000,000. At the Company's option,
the interest rate on any loan may be based on (i) the higher of the Federal
funds rate plus 1/4% or the prime rate, (ii) LIBOR plus up to .63% or (iii) a
negotiated rate based upon market conditions.
In June 1995, the Company sold $100,000,000 of 7% Notes due June 1,
2005. Proceeds were used to repay portions of the Company's long-term
variable-rate bank debt and for general corporate purposes.
In September 1996, the Company received net proceeds of $146,250,000
from the sale of zero coupon subordinated Liquid Yield Option Notes due 2011
which have an aggregate principal amount at maturity of $271,704,000. The notes
were issued at a discount representing a yield to maturity of 4%. Proceeds from
the notes were used to repay the Company's short-term variable-rate bank debt,
portions of the Company's long-term variable-rate bank debt and for general
corporate purposes.
22
<PAGE>
In July 1997, the Company established a Medium-Term Note program which
permitted the Company to issue up to $150,000,000 of Medium-Term Notes. Under
this program the Company has sold $150,000,000 principal amount of senior notes,
ranging in annual interest rates from 6.4% to 6.7% and due November 2004
through September 2007. The net proceeds of $149,225,000 were used for working
capital, the repayment of debt and for general corporate purposes.
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.
The Company's working capital was $151,340,000 at January 31, 1998,
$70,691,000 at February 1, 1997 and $39,868,000 at February 3, 1996. The
Company's long-term debt, as a percentage of its total capitalization, was 44%
at January 31, 1998, 37% at February 1, 1997 and 36% at February 3, 1996.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement, which establishes standards for reporting
and disclosure of comprehensive income, is effective for interim and annual
periods beginning after December 15, 1997, although earlier adoption is
permitted. As this statement only requires additional disclosures in the
Company's consolidated financial statements, its adoption will not have any
impact on the Company's consolidated financial position or results of
operations. The Company will adopt SFAS No. 130 in fiscal 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, which establishes
standards for the reporting of information about operating segments and requires
the reporting of selected information about operating segments in interim
financial statements, is effective for fiscal years beginning after December 15,
1997, although earlier application is permitted. If applicable, this statement
would only require additional disclosures in the Company's consolidated
financial statements and as such, its adoption will not have any impact on the
Company's consolidated financial position or results of operations. The Company
expects to adopt SFAS No. 131 in fiscal 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures
about Pensions and Other Postretirement Benefits." This statement, which
establishes standards for the reporting of information about pensions and other
postretirement benefits, is effective for periods beginning after December 15,
1997, although earlier adoption is permitted. The Company does not expect
adoption of this statement to result in significant changes to its presentation
of pension and other postretirement benefit information. The Company will adopt
SFAS No. 132 in fiscal 1998.
23
<PAGE>
INFORMATION SYSTEMS AND THE YEAR 2000
The Company recognizes that the arrival of the Year 2000 poses a
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and, like other companies, has assessed and
is modifying its computer applications and business processes to provide for
their continued functionality. An assessment of the readiness of external
entities which it interfaces with, such as vendors, suppliers, customers and
others, is ongoing.
The Company expects that the principal costs involved will be those
associated with the remediation and testing of its computer applications. This
effort is currently underway across the Company. A large portion of these costs
will be met from existing resources through a reprioritization of technology
development initiatives, with the remainder representing incremental costs.
Management estimates that these costs, which will be expensed as incurred, for
the remediation and testing of computer applications will range from
approximately $12,000,000 to $16,000,000 over the two year period from 1998
through the end of 1999.
While the Company does not currently foresee any material problems,
there can be no guarantee that the Company and the external entities with which
it interfaces will be Year 2000 compliant by January 1, 2000 and that any such
non-compliance will not have a material adverse effect on the Company.
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 and consumers' ability to spend,
the health of various segments of the market that the Company serves --
particularly the do-it-yourself segment, 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 complete the rollout of the commercial delivery
program and reduce inventory levels during 1998. Further risk factors are
discussed in the Company's filings with the Securities and Exchange Commission.
24
<PAGE>
ITEM 8 FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Pep Boys - Manny, Moe & Jack
We have audited the accompanying consolidated balance sheets of The Pep Boys -
Manny, Moe & Jack and subsidiaries as of January 31, 1998 and February 1, 1997,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 1998. Our
audits also included the financial statement schedule listed in the index at
Item 14. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Pep Boys - Manny, Moe & Jack
and subsidiaries at January 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 19, 1998
25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
January 31, February 1,
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 10,811 $ 2,589
Accounts receivable, less allowance for
uncollectible accounts of $265 and $252 13,070 7,653
Merchandise inventories 655,363 520,082
Prepaid expenses 27,449 33,042
Deferred income taxes 23,215 16,982
Other 40,308 24,570
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 770,216 604,918
- -----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost:
Land 296,721 278,345
Building and improvements 920,522 794,244
Furniture, fixtures and equipment 542,256 448,425
Construction in progress 21,432 22,528
- -----------------------------------------------------------------------------------------------------------------------------------
1,780,931 1,543,542
Less accumulated depreciation and amortization 403,182 353,808
- -----------------------------------------------------------------------------------------------------------------------------------
Total Property and Equipment 1,377,749 1,189,734
- -----------------------------------------------------------------------------------------------------------------------------------
Other 13,395 23,713
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,161,360 $ 1,818,365
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 409,053 $ 337,536
Accrued expenses 162,666 133,557
Short-term borrowings 47,000 63,000
Current maturities of long-term debt 157 134
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 618,876 534,227
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities 402,021 217,178
Deferred Income Taxes 73,208 50,382
Convertible Subordinated Notes 86,250 86,250
Zero Coupon Convertible Subordinated Notes 158,370 152,237
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $1 per share: Authorized 500,000,000 shares;
Issued and outstanding 63,657,728 and 63,119,491 63,658 63,119
Additional paid-in capital 171,741 162,660
Retained earnings 647,505 612,581
- -----------------------------------------------------------------------------------------------------------------------------------
882,904 838,360
Less cost of shares in benefits trust - 2,232,500 shares, at cost 60,269 60,269
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 822,635 778,091
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,161,360 $ 1,818,365
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
<S> <C> <C> <C>
January 31, February 1, February 3,
Year ended 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Merchandise Sales $1,720,670 $ 1,554,757 $ 1,355,008
Service Revenue 335,850 273,782 239,332
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues 2,056,520 1,828,539 1,594,340
- ------------------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 1,246,431 1,070,263 943,875
Costs of Service Revenue 269,769 220,757 194,942
- ------------------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 1,516,200 1,291,020 1,138,817
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 474,239 484,494 411,133
Gross Profit from Service Revenue 66,081 53,025 44,390
- ------------------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 540,320 537,519 455,523
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 430,517 350,419 296,089
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit 109,803 187,100 159,434
Nonoperating Income 5,309 2,435 2,090
Interest Expense 39,656 30,306 32,072
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 75,456 159,229 129,452
Income Taxes 25,845 58,405 47,958
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 49,611 $ 100,824 $ 81,494
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share $ .81 $ 1.67 $ 1.37
Diluted Earnings per Share $ .80 $ 1.62 $ 1.34
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
Additional Total
Common Stock Paid-in Retained Benefits Stockholders'
Shares Amount Capital Earnings Trust Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 28, 1995 61,501,679 $61,502 $130,732 $454,288 $(60,269) $586,253
Net earnings 81,494 81,494
Cash dividends ($.19 per share) (11,339) (11,339)
Exercise of stock options
and related tax benefits 555,471 555 7,829 8,384
Dividend reinvestment plan 26,871 27 662 689
Acquisitions and transfers of 140,000
shares to employees' savings plan (21) (21)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 3, 1996 62,084,021 62,084 139,202 524,443 (60,269) 665,460
Net earnings 100,824 100,824
Cash dividends ($.21 per share) (12,686) (12,686)
Exercise of stock options
and related tax benefits 1,002,333 1,002 22,977 23,979
Dividend reinvestment plan 33,137 33 1,025 1,058
Acquisitions and transfers of 150,500
shares to employees' savings plan (544) (544)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 63,119,491 63,119 162,660 612,581 (60,269) 778,091
Net earnings 49,611 49,611
Cash dividends ($.24 per share) (14,687) (14,687)
Exercise of stock options
and related tax benefits 491,039 492 6,850 7,342
Minimum pension liability adjustment,
net of tax 1,366 1,366
Dividend reinvestment plan 47,198 47 1,221 1,268
Acquisitions and transfers of 190,000
shares to employees' savings plan (356) (356)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 63,657,728 $63,658 $171,741 $647,505 $(60,269) $822,635
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands)
January 31, February 1, February 3,
Year ended 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 49,611 $ 100,824 $ 81,494
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and amortization 82,862 65,757 53,456
Accretion of bond discount 6,133 2,238 -
Increase in deferred income taxes 16,593 8,838 2,034
Loss (gain) from sales of assets 12,278 (34) 201
Changes in operating assets and liabilities:
Increase in accounts receivable, prepaid expenses
and other (16,875) (44,950) (2,445)
Increase in merchandise inventories (135,281) (102,230) (51,009)
Increase in accounts payable 71,517 115,012 122,360
Increase in accrued expenses 30,119 37,138 25,228
- ------------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 67,346 81,769 149,825
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 116,957 182,593 231,319
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (284,084) (245,246) (205,913)
Proceeds from sales of assets 929 3,841 114
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (283,155) (241,405) (205,799)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net borrowings (payments) under line of credit
agreements 19,000 (1,500) (102,700)
Borrowings from life insurance policies 12,406 - -
Reduction of long-term debt (134) (107,187) (19,807)
Dividends paid (14,687) (12,686) (11,339)
Net proceeds from issuance of notes 149,225 146,250 98,992
Proceeds from exercise of stock options 7,342 23,979 8,384
Proceeds from dividend reinvestment plan 1,268 1,058 689
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 174,420 49,914 (25,781)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 8,222 (8,898) (261)
Cash at Beginning of Year 2,589 11,487 11,748
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at End of Year $ 10,811 $ 2,589 $ 11,487
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 29,009 $ 56,336 $ 40,251
Interest paid, net of amounts capitalized 38,622 34,081 30,155
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 31, 1998, February 1, 1997 and February 3, 1996 (dollar
amounts in thousands, except per share amounts)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is
engaged principally in the retail sale of automotive parts and accessories,
automotive maintenance and service and the installation of parts through a chain
of 711 stores at January 31, 1998. The Company currently operates stores in 33
states, Washington, D.C. and Puerto Rico.
FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to
January 31. Fiscal years 1997, 1996 and 1995 were comprised of 52 weeks, 52
weeks and 53 weeks, respectively.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
MERCHANDISE INVENTORIES Merchandise inventories are valued at the lower of cost
(last-in, first-out method) or market. If the first-in, first-out method of
valuing inventories had been used, inventories would have been approximately
$870 and $3,300 higher at January 31, 1998 and February 1, 1997, respectively.
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation
and amortization are computed using the straight-line method over the following
estimated useful lives: building and improvements, 5 1/2 to 40 years; furniture,
fixtures and equipment, 3 to 10 years.
CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection
with the construction of certain long-term assets. Capitalized interest amounted
to $1,861, $1,575 and $1,407 in fiscal years 1997, 1996 and 1995, respectively.
SERVICE REVENUE Service revenue consists of the labor charge for installing
merchandise or maintaining or repairing vehicles, excluding the sale of any
installed parts or materials.
COSTS OF REVENUES Costs of merchandise sales include the cost of products sold,
buying, warehousing and store occupancy costs. Costs of service revenue include
service center payroll and related employee benefits and service center
occupancy costs. Occupancy costs include utilities, rents, real estate and
property taxes, repairs and maintenance and depreciation and amortization
expenses.
PENSION EXPENSE Annual pension expense is actuarially computed using the
"projected unit credit method" which attributes an equal portion of total
projected benefits to each year of employee service.
INCOME TAXES The Company uses the liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." Under the liability method, deferred income
taxes are determined based upon enacted tax laws and rates applied to the
differences between the financial statement and tax bases of assets and
liabilities.
ADVERTISING The Company expenses the production costs of advertising the first
time the advertising takes place. The Company nets cooperative advertising
reimbursements against costs incurred. Net advertising expense for fiscal years
1997, 1996 and 1995 was $0, $324 and $973, respectively. No advertising costs
were recorded as an asset as of January 31, 1998.
IMPAIRMENT OF LONG-LIVED ASSETS Effective February 4, 1996, the Company adopted
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This standard prescribes the method for
asset impairment evaluation for long-lived assets and certain identifiable
intangibles that are either held and used or to be disposed of. The
implementation of this standard did not have an effect on the Company's
financial position or results of operations.
30
<PAGE>
ACCOUNTING FOR STOCK-BASED COMPENSATION The Company adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," on
February 4, 1996. As permitted by SFAS No. 123, the Company is accounting for
employee stock-based compensation plans in accordance with Accounting Principles
Board (APB) opinion No. 25, "Accounting for Stock Issued to Employees," and has
provided disclosures required by SFAS No. 123.
REPORTING COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income." This
statement, which establishes standards for reporting and disclosure of
comprehensive income, is effective for interim and annual periods beginning
after December 15, 1997, although earlier adoption is permitted. As this
statement only requires additional disclosures in the Company's consolidated
financial statements, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company will adopt
SFAS No. 130 in fiscal 1998.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This statement, which establishes standards for the
reporting of information about operating segments and requires the reporting of
selected information about operating segments in interim financial statements,
is effective for fiscal years beginning after December 15, 1997, although
earlier application is permitted. If applicable, this statement would only
require additional disclosures in the Company's consolidated financial
statements and as such, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company expects to
adopt SFAS No. 131 in fiscal 1998.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement, which established
standards for the reporting of information about pensions and other
postretirement benefits, is effective for periods beginning after December 15,
1997, although earlier adoption is permitted. The Company does not expect
adoption of this statement to result in significant changes to its presentation
of pension and other postretirement benefit information. The Company will adopt
SFAS No. 132 in fiscal 1998.
RECLASSIFICATIONS Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the current year's presentation.
31
<PAGE>
NOTE B - DEBT
SHORT-TERM BORROWINGS The Company had short-term borrowings of $47,000 at
January 31, 1998 and $63,000 at February 1, 1997. The Company had short-term
lines of credit with several banks totaling $159,000 at January 31, 1998 and
February 1, 1997. The interest rates on these lines were negotiated based upon
market conditions. The weighted average interest rate on borrowings from these
lines was 5.9% at January 31, 1998 and 5.8% at February 1, 1997. The average and
maximum month end balances on these borrowings were $111,014 and $143,150 during
fiscal 1997 and $98,696 and $154,200 during fiscal 1996.
<TABLE>
<CAPTION>
LONG-TERM DEBT
- -----------------------------------------------------------------------------------------------------------
Jan. 31, Feb. 1,
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medium-term notes, 6.4% to 6.7%, due
November 2004 through September 2007 $150,000 $ -
7% notes due June 2005 100,000 100,000
Revolving credit agreement (a) 75,000 40,000
6 5/8% notes due May 2003 75,000 75,000
Mortgage notes payable, 5.8% to 8% (b) 2,178 2,312
- -----------------------------------------------------------------------------------------------------------
402,178 217,312
Less current maturities 157 134
- -----------------------------------------------------------------------------------------------------------
Total long-term debt $402,021 $217,178
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Company has a revolving credit agreement with ten major banks providing
for borrowings of up to $200,000. Funds may be drawn and repaid anytime
prior to March 30, 2002. Sixty days prior to each anniversary date, the
Company may request, and upon agreement of each bank, extend the maturity
of this facility an additional year. If one of the banks fails to agree to
this extension, the Company has the right to replace that bank. At the
Company's option, the interest rate on any loan may be based on (i) the
higher of the federal funds rate plus 1/4% or the prime rate, (ii) LIBOR
plus up to .63% or (iii) a negotiated rate based upon market conditions.
The weighted average interest rate was 5.9% at January 31, 1998 and 5.7% at
February 1, 1997.
(b) The weighted average interest rate on the mortgage notes payable was 6.9%
at January 31, 1998 and February 1, 1997. These notes, which mature at
various times through August 2016, are collateralized by land and building
with an aggregate carrying value of approximately $7,695 at January 31,
1998.
32
<PAGE>
CONVERTIBLE SUBORDINATED NOTES On August 24, 1994 the Company sold $86,250 of 4%
convertible subordinated notes. These notes are convertible by the holders into
the common stock of the Company at any time on or before September 1, 1999 (the
maturity date) at a conversion price of $41 per share subject to adjustment in
certain events. The notes are redeemable, in whole or in part, at the option of
the Company at any time on or after September 15, 1997, at a redemption price of
101% of the principal amount and at par on or after September 1, 1998. The notes
are subordinated to all existing and future senior indebtedness of the Company.
ZERO COUPON CONVERTIBLE SUBORDINATED NOTES On September 20, 1996, the Company
issued $271,704 principal amount (at maturity) of Liquid Yield Option Notes
(LYONs) with a price to the public of $150,000. The net proceeds to the Company
were $146,250. The issue price of each such LYON was $552.07 and there will be
no periodic payments of interest. The LYONs will mature on September 20, 2011,
at $1,000 per LYON, representing a yield to maturity of 4.0% per annum (computed
on a semiannual bond equivalent basis).
Each LYON is convertible at the option of the holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased, into
common stock of the Company at a conversion rate of 12.929 shares per LYON. The
LYONs are redeemable at the option of the holder on September 20, 2001 and
September 20, 2006 at the issue price plus accrued original issue discount. The
Company, at its option, may elect to pay the purchase price on any such purchase
date in cash or common stock, or any combination thereof. No LYONs were
converted in 1997 and 1996. In addition, on or prior to September 20, 2001, the
Company will purchase for cash any LYON, at the option of the holder, in the
event of change in control of the Company. The LYONs are subordinated to all
existing and future senior indebtedness of the Company.
Several of the Company's debt agreements require the maintenance of
certain financial ratios and covenants. Approximately $57,649 of the Company's
net worth was not restricted by these covenants at fiscal year end. The Company
is in compliance with all debt covenants at January 31, 1998.
The annual maturities of all long-term debt for the next five years are
$157 in 1998, $86,420 in 1999, $183 in 2000, $197 in 2001 and $75,111 in 2002.
Any compensating balance requirements related to all revolving credit agreements
and debt were satisfied by balances available from normal business operations.
The Company was contingently liable for outstanding letters of credit
in the amount of approximately $23,443 at January 31, 1998.
In February 1998, the Company established a Medium-Term Note program
which permits the Company to issue up to $200,000 of Medium-Term Notes. Under
this program the Company has sold $100,000 principal amount of senior notes,
ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March
2006. The net proceeds of $99,429 were used for working capital, the repayment
of debt and for general corporate purposes.
NOTE C - LEASE COMMITMENTS
The Company leases certain property and equipment under operating
leases which contain renewal and escalation clauses. Aggregate minimum rental
commitments for leases having noncancelable lease terms of more than one year
are approximately: 1998 - $43,015; 1999 - $41,967; 2000 - $41,642; 2001 -
$41,831; 2002 - $42,081; thereafter - $422,636. Rental expenses incurred for
operating leases in 1997, 1996 and 1995 were $49,105, $33,616 and $22,302,
respectively.
NOTE D - STOCKHOLDERS' EQUITY
RIGHTS AGREEMENT On December 31, 1997, the Company distributed as a dividend one
common share purchase right on each of its common shares. The rights will not be
exercisable or transferable apart from the Company's common stock until a person
or group, as defined in the rights agreement (dated December 5,1997), without
the proper consent of the Company's Board of Directors, acquires 15% or more, or
makes an offer to acquire 15% or more of the Company's outstanding stock. When
exercisable, the rights entitle the holder to purchase one share of the
Company's common stock for $125. Under certain circumstances, including the
acquisition of 15% of the Company's stock by a person or group, the rights
entitle the holder to purchase common stock of the Company or common stock of an
acquiring company having a market value of twice the exercise price of the
right. The rights do not have voting power and are subject to redemption by the
Company's Board of Directors for $.01 per right anytime before a 15% position
has been acquired and for 10 days thereafter, at which time the rights become
nonredeemable. The rights expire on December 31, 2007.
BENEFITS TRUST On April 29, 1994, the Company established a flexible employee
benefits trust with the intention of purchasing up to $75,000 worth of the
Company's common shares. The repurchased shares will be held in the trust and
will be used to fund the Company's existing benefit plan obligations including
healthcare programs, savings and retirement plans and other benefit obligations.
The trust will allocate or sell the repurchased shares over the next 15 years to
fund these benefit programs. As shares are released from the trust, the Company
will charge or credit
33
<PAGE>
additional paid-in capital for the difference between the fair value of shares
released and the original cost of the shares to the trust. For financial
reporting purposes, the trust is consolidated with the accounts of the Company.
All dividend and interest transactions between the trust and the Company are
eliminated. As of January 31, 1998, the Company has repurchased 2,232,500 shares
of its common stock at a cost of $60,269 which is shown as "Cost of shares in
benefits trust" on the Company's consolidated balance sheets.
NOTE E - FOURTH QUARTER CHARGES
During the fourth quarter of fiscal 1997 the Company recorded pretax
charges of $28,012 ($18,418 net of tax), $16,330 of which was recorded as Costs
of Merchandise Sales on the Company's Consolidated Statements of Earnings and
includes the costs associated with closing nine stores, converting all PARTS USA
stores to the PEP BOYS EXPRESS format, certain equipment write-offs and other
non-recurring expenses. The remaining $11,682 of these expenses, which include
costs associated with reducing the store expansion program, certain equipment
write-offs and other non-recurring expenses, have been included in Selling,
General and Administrative Expenses on the Company's Consolidated Statements of
Earnings.
NOTE F - PENSION AND SAVINGS PLANS
The Company has a pension plan covering substantially all of its
full-time employees hired on or before February 1, 1992. Normal retirement age
is 65. Pension benefits are based on salary and years of service. The Company's
policy is to fund amounts as are necessary on an actuarial basis to provide
assets sufficient to meet the benefits to be paid to plan members in accordance
with the requirements of ERISA.
The actuarial computations using the "projected unit credit method"
assumed a discount rate on benefit obligations of 7.5% in 1997, 7.5% in 1996 and
8.5% in 1995, and an expected long-term rate of return on plan assets of 8.5%.
The assumption for annual salary increases over the average remaining service
lives of employees under the plan was 4% in 1996 and 1995. Variances between
actual experience and assumptions for costs and returns on assets are amortized
over the remaining service lives of employees under the plan.
As of December 31, 1996, the Company froze the accrued benefits under
the plan and active participants became fully vested. The plan's trustee will
continue to maintain and invest plan assets and will administer benefit
payments. In accordance with SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
a curtailment gain of $1,554 was recognized in 1996.
Pension (income) expense includes the following:
<TABLE>
<CAPTION>
Jan. 31, Feb. 1, Feb. 3,
Year Ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Normal service costs $ - $1,213 $ 968
Interest cost on projected
benefit obligation 1,667 1,561 1,382
Actual return on plan assets (614) (752) (720)
Net amortization of transition
asset and unrecognized net gain (214) (214) (759)
Prior service cost - 19 19
Asset gain deferred (1,115) (974) (1,013)
- -----------------------------------------------------------------------------------------------------------------------------------
Total pension (income) expense $ (276) $ 853 $ (123)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pension plan assets are stated at fair market value and are composed primarily
of money market funds, fixed income investments with maturities of less than
five years and the Company's common stock.
34
<PAGE>
The following table sets forth the reconciliation of the plan's funded status as
of December 31 of each year. The actuarial present value of benefit obligation
assumed a weighted average discount rate of 7.25% at December 31, 1997 and 7.5%
at December 31, 1996.
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $(24,567) $(22,076)
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $(24,567) $(22,076)
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $(24,567) $(22,076)
Plan assets at fair value 20,324 20,815
- -------------------------------------------------------------------------------------------------------------
Assets less than projected benefit obligation (4,243) (1,261)
Unrecognized net asset (at date of transition) (857) (1,071)
Unrecognized net loss from past
experience different from previous
assumption 3,043 -
Adjustment to recognize minimum liability (2,186) -
- -------------------------------------------------------------------------------------------------------------
Accrued pension cost
as of January 31, 1998 and
February 1, 1997, respectively $ (4,243) $ (2,332)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has a 401(k) savings plan which covers all full-time employees who
are at least 21 years of age with one or more years of service. The Company
contributes the lesser of 50% of the first 6% of a participant's contributions
or 3% of the participant's compensation. The Company's savings plan contribution
expense was $4,543 in 1997, $3,685 in 1996 and $3,150 in 1995.
35
<PAGE>
NOTE G - INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 8,651 $45,831 $42,276
State 601 3,761 3,648
Deferred:
Federal 15,487 8,225 1,905
State 1,106 588 129
- -----------------------------------------------------------------------------------------------------------------------------------
$25,845 $58,405 $47,958
- -----------------------------------------------------------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate to the
effective rate of the provision for income taxes follows:
Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
tax benefits 1.5 1.8 1.9
Other, net (2.2) (.1) .1
- -----------------------------------------------------------------------------------------------------------------------------------
34.3% 36.7% 37.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes relate to the following temporary differences:
Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Depreciation $ 22,173 $ 9,330 $ 6,420
Inventories 575 (1,593) (2,551)
Vacation accrual (725) (593) (522)
Pension accrual (2,118) 263 47
Store closing reserves (3,866) - -
Insurance (288) 1,096 (1,143)
Other, net 842 310 (217)
- -----------------------------------------------------------------------------------------------------------------------------------
$16,593 $ 8,813 $ 2,034
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
The following are components of the net deferred tax accounts as of
January 31, 1998:
<TABLE>
<CAPTION>
Federal State Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Current $33,817 $2,415 $36,232
Long-term 18,981 1,356 20,337
Deferred tax liabilities:
Current 12,149 868 13,017
Long-term 87,308 6,237 93,545
- -----------------------------------------------------------------------------------------------------------------------------------
The following are components of the net deferred tax accounts as of
February 1, 1997:
Federal State Total
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Current $26,426 $1,883 $28,309
Long-term 18,720 1,337 20,057
Deferred tax liabilities:
Current 10,572 755 11,327
Long-term 65,748 4,691 70,439
- -----------------------------------------------------------------------------------------------------------------------------------
Items that gave rise to significant portions of the deferred tax
accounts are as follows:
Jan. 31, Feb. 1,
Year ended 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Inventories $ 9,500 $10,075
Vacation accrual 4,325 3,600
Minimum pension liability adjustment 820 -
Store closing reserves 3,866 -
Other, net 4,704 3,307
- -----------------------------------------------------------------------------------------------------------------------------------
$23,215 $16,982
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $70,681 $48,507
Other, net 2,527 1,875
- -----------------------------------------------------------------------------------------------------------------------------------
$73,208 $50,382
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
NOTE H - NET EARNINGS PER SHARE
The FASB issued SFAS No. 128, "Earnings per Share," to be effective for
all periods ending after December 15, 1997. SFAS 128 requires all prior period
earnings per share data presented to be restated to conform with the provisions
of this pronouncement. SFAS 128 replaces primary earnings per share with the
presentation of basic earnings per share and fully diluted earnings per share
with diluted earnings per share.
For fiscal years 1997, 1996 and 1995, basic earnings per share are
based on net earnings divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share assumes conversion of
convertible subordinated notes, zero coupon convertible subordinated notes and
the dilutive effects of stock options. Adjustments for convertible securities
were antidilutive in 1997 and therefore excluded from the computation of diluted
EPS, however, these securities could potentially be dilutive in the future.
Options to purchase 2,281,572 shares of common stock at various prices ranging
from $23.78 to $37.38 were outstanding at January 31, 1998 but were not included
in the computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common shares.
- --------------------------------------------------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
---------------------------------- ------------------------------------------
Earnings Shares Per Share Earnings Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Earnings available to
common stockholders $49,611 61,133 $0.81 $100,824 60,305 $1.67
===== =====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax - - 2,168 2,104
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - - 1,409 1,303
Common Shares assumed
issued upon exercise of
dilutive stock options - 524 - 893
Diluted EPS ------- ------ -------- ------
Earnings available to common
stockholders assuming
conversion $49,611 61,657 $0.80 $104,401 64,605 $1.62
======= ====== ===== ======== ====== =====
[RESTUBBED TABLE]
(in thousands, except per share amounts)
Fiscal 1995
---------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Earnings available to
common stockholders $81,494 59,581 $1.37
=====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax 2,200 2,104
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - -
Common Shares assumed
issued upon exercise of
dilutive stock options - 903
Diluted EPS ------- ------
Earnings available to common
stockholders assuming
conversion $83,694 62,588 $1.34
======= ====== =====
</TABLE>
38
<PAGE>
NOTE I - STOCK OPTIONS PLANS
Options to purchase the Company's common stock have been granted to key
employees and certain members of the Board of Directors. The option prices are
at least 100% of the fair market value of the common stock on the grant date.
Under the terms of the Company's Incentive Stock Option Plan adopted in
1982, options to purchase up to 3,600,000 shares of the Company's common stock
were authorized. Options granted prior to 1988 are exercisable from the date of
grant. Options granted in 1988 and thereafter are exercisable on the second
anniversary of the grant date. All options under this plan cannot be exercised
more than ten years from the grant date. No additional options will be granted
under this plan.
Under the terms of the Company's Nonqualified Stock Option Plans,
adopted in 1984 and 1985, options to purchase up to 3,300,000 shares of the
Company's common stock were authorized. The options became exercisable over a
five-year period with one-fifth exercisable on the grant date and one-fifth on
each anniversary date for the four years following the grant date. Options
granted cannot be exercised more than ten and one-half years after the grant
date. No additional options will be granted under these plans.
On May 21, 1990, the stockholders approved the 1990 Stock Incentive Plan
which authorized the issuance of restricted stock and/or options to purchase up
to 1,000,000 shares of the Company's common stock. Additional shares in the
amounts of 2,000,000, 1,500,000 and 1,500,000 were authorized by stockholders on
June 4, 1997, May 31, 1995 and June 1, 1993, respectively. Under this plan, both
incentive and nonqualified stock options may be granted to eligible
participants. Incentive stock options are exercisable on the second or third
anniversary of the grant date and nonqualified options become exercisable over a
five-year period with one-fifth exercisable on the grant date and one-fifth on
each anniversary date for the four years following the grant date. Options
cannot be exercised more than ten years after the grant date. As of January 31,
1998, 2,277,285 shares remain available for grant.
Stock option transactions for the Company's stock option plans are
summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
------------------------ ----------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 3,500,036 $23.34 4,031,329 $20.91 3,662,779 $16.24
Granted 837,000 30.15 613,702 33.64 1,042,970 30.90
Exercised (487,914) 15.00 (988,605) 18.43 (582,470) 8.16
Canceled (383,928) 30.24 (156,390) 31.10 (91,950) 28.76
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 3,465,194 25.40 3,500,036 23.34 4,031,329 20.91
- ---------------------------------------------------------------------------------------------------------------------------
Options exercisable - at year end 1,988,209 21.08 2,227,917 18.53 2,724,607 16.77
Weighted average estimated fair value
of options granted 11.00 11.28 11.04
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
The following table summarizes information about stock options
outstanding at January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 1/31/98 Life Price at 1/31/98 Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.13 to $20.00 894,855 2 years $12.36 894,855 $12.36
$20.01 to $25.00 404,900 6 years 22.85 336,850 22.67
$25.01 to $30.00 297,889 7 years 27.38 192,311 27.79
$30.01 to $37.38 1,867,550 8 years 31.88 564,193 31.67
- ----------------------------------------------------------------------------------------------------------------------------------
$11.13 to $37.38 3,465,194 1,988,209
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for its stock
option plans. Had compensation cost for the Company's stock option plans for
options granted in fiscal 1995 and thereafter been determined based on the fair
value at the grant dates and recognized as compensation expense on a
straight-line basis over the vesting period of the grant consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's
net earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings:
As reported $49,611 $ 100,824
Pro forma $46,120 $ 98,185
Net earnings per share:
As reported
Basic $ 0.81 $ 1.67
Diluted $ 0.80 $ 1.62
Pro forma
Basic $ 0.75 $ 1.63
Diluted $ 0.75 $ 1.58
- ---------------------------------------------------------------------------------------------------
</TABLE>
The pro forma effect on net earnings for fiscal 1997 and fiscal 1996
are not representative of the pro forma effect on net earnings in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995.
The fair value of each option granted during fiscal 1997 and fiscal
1996 is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: (i) 0.7% dividend yield
for all years, (ii) expected volatility of 33% and 32%, respectively, (iii)
risk-free interest rate ranges of 5.5% to 6.9% and 5.5% to 6.7%, respectively,
and (iv) ranges of expected lives 3.5 years to 6.5 years and 3.5 years to 6
years, respectively.
NOTE J - CONTINGENCIES
The Company is a defendant in a purported class action entitled "Brian
Lee, Anthony Baxton, and Harry Schlein v. The Pep Boys - Manny, Moe & Jack," in
the Circuit Court of Mobile County, Alabama. The Company has moved to dismiss
the case for failure to state a claim. The Company's motion to dismiss is
pending before the Circuit Court of Mobile County, Alabama. In their complaint,
the plaintiffs allege that the Company sold old or used automotive batteries to
consumers as if those batteries were new. The complaint purports to state causes
of action for fraud and deceit, negligent misrepresentation, breach of contract
and violation of state consumer protection statutes. The plaintiffs are seeking
compensatory and punitive damages, as well as injunctive and equitable relief.
The Company believes the claims are without merit and intends to vigorously
defend this action.
40
<PAGE>
The Company is also party to various other lawsuits and claims arising
in the normal course of business. In the opinion of management, these lawsuits
and claims, including the case above, are not singularly or in the aggregate,
material to the Company's financial position or results of operations.
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are
as follows:
...............................................................................
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
------------------------ ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 10,811 $ 10,811 $ 2,589 $ 2,589
Accounts receivable 13,070 13,070 7,653 7,653
Liabilities:
Accounts payable 409,053 409,053 337,536 337,536
Short-term borrowings 47,000 47,000 63,000 63,000
Long-term debt including
current maturities 402,178 406,086 217,312 215,029
Convertible subordinated
notes 86,250 84,637 86,250 88,838
Zero coupon convertible
subordinated notes 158,370 147,236 152,237 146,041
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND SHORT-TERM BORROWINGS
The carrying amounts approximate fair value because of the short
maturity of these items.
LONG-TERM DEBT INCLUDING CURRENT MATURITIES, CONVERTIBLE SUBORDINATED NOTES AND
ZERO COUPON CONVERTIBLE SUBORDINATED NOTES
Interest rates that are currently available to the Company for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues that are not quoted on an exchange.
The fair value estimates presented herein are based on pertinent
information available to management as of January 31, 1998 and February 1, 1997.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from amounts presented herein.
41
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------------
Net Earnings Cash Market Price
Year Ended Total Gross Operating Net Per Share Dividends Per Share
Jan. 31, 1998 Revenues Profit Profit Earnings Basic Diluted Per Share High Low
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $489,278 $141,942 $44,105 $23,146 $.38 $.37 $.0600 35 29 3/8
2nd Quarter 539,298 160,465 55,508 30,088 .49 .47 .0600 35 5/8 30
3rd Quarter 525,564 152,866 46,318 24,120 .39 .38 .0600 34 7/8 23 5/8
4th Quarter 502,380 85,047 (36,128) (27,743) (.45) (.45) .0600 26 3/16 21 9/16
- --------------------------------------------------------------------------------------------------------------------
Year Ended
Feb. 1, 1997
- --------------------------------------------------------------------------------------------------------------------
1st Quarter $428,614 $121,301 $39,594 $20,116 $.34 $.33 $.0525 34 7/8 27 7/8
2nd Quarter 476,673 141,421 55,333 30,235 .50 .49 .0525 35 1/2 28
3rd Quarter 478,819 138,287 50,109 27,777 .46 .44 .0525 38 1/4 30 3/4
4th Quarter 444,433 136,510 42,064 22,696 .37 .36 .0525 38 27 7/8
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the Company's present accounting system, actual gross profit from
merchandise sales can be determined only at the time of physical inventory,
which is taken at the end of the fiscal year. Gross profit from merchandise
sales for the first, second and third quarters is estimated by the Company based
upon recent historical gross profit experience and other appropriate factors.
Any variation between estimated and actual gross profit from merchandise sales
for the first three quarters is reflected in the fourth quarter's results. See
discussion of fourth quarter charges in Note E to the Consolidated Financial
Statements.
42
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material contained in the registrant's definitive proxy statement,
which will be filed pursuant to Regulation 14A not later than 120 days after the
end of the Company's fiscal year (the "Proxy Statement"), under the caption
"Election of Directors" is hereby incorporated herein by reference. The
information regarding executive officers called for by Item 401 of Regulation
S-K is included in Part I, in accordance with General Instruction G(3) to Form
10-K.
ITEM 11 EXECUTIVE COMPENSATION
The material in the Proxy Statement under the caption "Executive
Compensation" other than the material under the caption "Executive Compensation
Report of Compensation Committee of the Board of Directors on Executive
Compensation" and "Executive Compensation - Performance Graph" is hereby
incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The material in the Proxy Statement under the caption "Share Ownership
of Certain Beneficial Owners and Management" is hereby incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material in the Proxy Statement under the caption "Executive
Compensation - Certain Relationships and Related Transactions" is hereby
incorporated herein by reference.
43
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a). Page
----
1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included in Item 8.
Independent Auditors' Report 25
Consolidated Balance Sheets -January 31, 1998
and February 1, 1997 26
Consolidated Statements of Earnings - Years ended January 31, 1998,
February 1, 1997 and February 3, 1996 27
Consolidated Statements of Stockholders' Equity Years ended January
31, 1998, February 1, 1997 and February 3, 1996 28
Consolidated Statements of Cash Flows - Years ended January 31, 1998,
February 1, 1997, and February 3, 1996 29
Notes to Consolidated Financial Statements 30
2. The following consolidated financial statement schedule of The Pep
Boys - Manny, Moe & Jack
is included.
Schedule II Valuation and Qualifying Accounts and Reserves 52
All other schedules have been omitted because they are not applicable
or not required or the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
<S> <C>
(3.1) Articles of Incorporation, Incorporated by reference from
as amended the Company's Form 10-K for the
fiscal year ended January 30,
1988.
(3.2) By-Laws, as amended Incorporated by reference from
the Registration Statement on
Form S-3 (File No. 33-39225).
(4.1) Indenture dated as of March 22, Incorporated by reference from
1991 between the Company and the Registration Statement on
Bank America Trust Company of Form S-3 (File No. 33-39225).
New York as Trustee, including
Form of Debt Security
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(4.2) Indenture, dated as of August Incorporated by reference from
31, 1994, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-55115).
National Association as Trustee,
including Form of Debenture
(4.3) Indenture, dated as of June Incorporated by reference from
12, 1995, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-59859).
National Association as Trustee,
including Form of Debenture
(4.4) Indenture, dated as of September Incorporated by reference from
20, 1996, between the Company and the Registration Statement on
the Trustee, providing for the Form S-3 (File No. 333-00985).
Issuance of the LYONs
(4.5) Indenture, dated as of July 15, 1997, Incorporated by reference from
between the Company and PNC the Registration Statement on
Bank, National Association, as Form S-3 (File No. 333-30295).
Trustee, providing for the issuance
of Senior Debt Securities, and form
of security
(4.6) Indenture, dated as of July 15, 1997, Incorporated by reference from
between the Company and PNC the Registration Statement on
Bank, National Association, as Form S-3 (File No. 333-30295)
Trustee, providing for the issuance
of Subordinated Debt Securities, and
form of security
(10.1) Medical Reimbursement Plan of Incorporated by reference from
the Company the Company's Form 10-K for the
fiscal year ended January 31,
1982.
(10.2)* 1982 Incentive Stock Option Plan Incorporated by reference from
of the Company the Company's Form 10-K for the
fiscal year ended January 31,
1982.
(10.3)* 1984 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for the
fiscal year ended February 2,
1985.
(10.4)* 1985 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for the
fiscal year ended February 2,
1985.
(10.5) Rights Agreement dated as of Incorporated by reference from
December 5, 1997 between the the Company's Form 8-K dated
Company and the First Union December 8, 1997.
National Bank
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(10.6)* Directors' Deferred Compensation Incorporated by reference from
Plan, as amended the Company's Form 10-K for the
fiscal year ended January 30,
1988.
(10.7)* Form of Employment Agreement, as Incorporated by reference from
amended, dated as of December 12, the Company's Form 10-K for the
1989 fiscal year ended February 3, 1990.
(10.8)* Amendment No. 1 to the 1985 Incorporated by reference from
Non-Qualified Stock Option Plan the Company's Form 10-K for the
fiscal year ended January 28, 1989.
(10.9)* Amendment No. 1 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-K for the
fiscal year ended January 28,
1989.
(10.10) Dividend Reinvestment and Stock Purchase Incorporated by reference from
Plan dated January 4, 1990 the Registration Statement on
Form S-3 (File No. 33-32857).
(10.11)* 1990 Stock Incentive Plan Incorporated by reference from
the Company's Form 10-Q for the
quarter ended November 3, 1990.
(10.12)* Amendment No. 1 to 1990 Stock Incorporated by reference from
Incentive Plan the Company's Form 10-K for the
fiscal year ended February 1, 1992.
(10.13)* The Pep Boys - Manny, Moe & Incorporated by reference from
Jack Trust Agreement for the the Company's Form 10-K for the
Executive Supplemental Pension fiscal year ended February 1,
Plan and Certain Contingent 1992.
Compensation Arrangements,
dated as of February 13, 1992
(10.14)* Amendment to the Executive Incorporated by reference from
Supplemental Pension Plan the Company's Form 10-K for the
(amended and restated effective fiscal year ended February 1,
January 1, 1988), dated as of 1992.
February 13, 1992
(10.15)* Consulting and Retirement Incorporated by reference from
Agreement by and between the the Company's Form 10-K for the
Company and Benjamin Strauss, fiscal year ended February 1,
dated as of February 2, 1992 1992.
(10.16)* Amendment No. 2 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.
(10.17)* Amendment No. 3 to the Non- Incorporated by reference from
Qualified Stock Option Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(10.18)* Amendment No. 2 to the 1990 Incorporated by reference from
Stock Incentive Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.
(10.19)* President's Merit Award Program Incorporated by reference from
of the Company, as amended, the Company's Form 10-K for the
dated as of April 1, 1992 year ended January 30, 1993.
(10.20) Flexible Employee Benefits Trust Incorporated by reference from
the Company's Form 8-K dated May
6, 1994.
(10.21)* Executive Incentive Bonus Plan Incorporated by reference from
of the Company, as amended and the Company's Form 10-K for the
restated as of March 30, 1994 year ended January 28, 1995.
(10.22) Credit Agreement dated as of Incorporated by reference from
April 21, 1995 between the the Company's Form 10-Q for the
Company and the Chase Manhattan quarter ended April 29, 1995.
Bank (Agent)
(10.23) Transaction Agreement including Incorporated by reference from
amendments, among The Pep Boys - the Company's Form 10-K for the
Manny, Moe & Jack, State Street year ended February 1, 1997.
Bank and Trust Company and
Citicorp Leasing, Inc., dated as of
November 13, 1995
(10.24) Master Lease, including amendments, Incorporated by reference from
between State Street Bank and Trust the Company's Form 10-K for the
Company and The Pep Boys - Manny, year ended February 1, 1997.
Moe & Jack, dated as of November 13,
1995
(10.25) Master Lease, including amendments,
between State Street Bank and Trust
Company and The Pep Boys - Manny,
Moe & Jack dated as of February 28,
1997
(10.26) Transaction Agreement including
amendments, between State Street
Bank and Trust Company and The
Pep Boys - Manny, Moe & Jack dated as
of February 28, 1997
(10.27) Amendment No. 1 to the Credit
Agreement dated as of April 21, 1995
between the Company and the Chase
Manhatten Bank (Agent)
(10.28)* The Pep Boys - Manny, Moe & Jack
Pension Plan
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(10.29)* The Pep Boys Savings Plan
(10.30)* The Pep Boys Savings Plan - Puerto Rico
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings
to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
(27) Financial Data Schedule
</TABLE>
(b) A Form 8-K was filed on December 8, 1997 relating to the
adoption of a shareholder rights plan.
*Management contract or compensatory plan or arrangement.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE PEP BOYS - MANNY, MOE & JACK
(Registrant)
Dated: April 27, 1998 by: /s/ Michael J. Holden
-------------- ---------------------
Michael J. Holden
Executive Vice President and
Chief Financial Officer
49
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE CAPACITY DATE
- --------- -------- ----
/s/ Mitchell G. Leibovitz Chairman of the Board, President April 27, 1998
Mitchell G. Leibovitz and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael J. Holden Executive Vice President and April 27, 1998
Michael J. Holden Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Lennox K. Black Director April 27, 1998
Lennox K. Black
/s/ Bernard J. Korman Director April 27, 1998
Bernard J. Korman
/s/ J. Richard Leaman, Jr. Director April 27, 1998
J. Richard Leaman, Jr.
/s/ Malcolmn D. Pryor Director April 27, 1998
Malcolmn D. Pryor
/s/ Lester Rosenfeld Director April 27, 1998
Lester Rosenfeld
/s/ Benjamin Strauss Director April 27, 1998
Benjamin Strauss
/s/ Myles H. Tanenbaum Director April 27, 1998
Myles H. Tanenbaum
/s/ David V. Wachs Director April 27, 1998
David V. Wachs
</TABLE>
50
<PAGE>
FINANCIAL STATEMENT SCHEDULES FURNISHED PURSUANT
TO THE REQUIREMENTS OF FORM 10-K
51
<PAGE>
<TABLE>
<CAPTION>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts Deductions* Period
- ---------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1998 $252 $541 $ - $528 $265
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended February 1, 1997 $251 $317 $ - $316 $252
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended February 3, 1996 $126 $140 $ - $ 15 $251
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Uncollectible accounts written off.
52
<PAGE>
INDEX TO EXHIBITS
Index of Financial Statements, Financial Statement Schedule and Exhibits
Page
----
1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included in Item 8.
Independent Auditors' Report 25
Consolidated Balance Sheets - January 31, 1998
and February 1, 1997 26
Consolidated Statements of Earnings - Years ended January 31,
1998, February 1, 1997 and February 3, 1996 27
Consolidated Statements of Stockholders' Equity Years ended
January 31, 1998, February 1, 1997and February 3, 1996 28
Consolidated Statements of Cash Flows - Years ended January 31,
1998, February 1, 1997 and February 3, 1998 29
Notes to Consolidated Financial Statements 30
2. The following consolidated financial statement schedule of The Pep
Boys - Manny, Moe & Jack
is included.
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because they are not
applicable or not required or the required information is included
in the consolidated financial statements or notes thereto.
3. Exhibits
(10.25) Master Lease, including amendments,
between State Street Bank and Trust
Company and The Pep Boys - Manny,
Moe & Jack dated as of February 28,
1997
(10.26) Transaction Agreement including
amendments, between State Street
Bank and Trust Company and The
Pep Boys - Manny, Moe & Jack dated as
of February 28, 1997
(10.27) Amendment No. 1 to the Credit
Agreement dated as of April 21, 1995
between the Company and the Chase
Manhatten Bank (Agent)
53
<PAGE>
(10.28)* The Pep Boys - Manny, Moe & Jack
Pension Plan
(10.29)* The Pep Boys Savings Plan
(10.30)* The Pep Boys Savings Plan - Puerto Rico
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
(27) Financial Data Schedules
54
<PAGE>
Exhibit 10.25
MASTER LEASE
Dated as of February 28, 1997
Between
STATE STREET BANK AND TRUST COMPANY
(NOT INDIVIDUALLY BUT SOLELY AS TRUSTEE)
Lessor
------
and
THE PEP BOYS - MANNY, MOE & JACK
and Certain Subsidiaries Thereof
Lessee
------
THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED CONSECUTIVELY
FROM 1 TO 6. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER
(AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN
COUNTERPART NO. 1.
This is Counterpart No. ______
[1997 Pep Boys II Leased Property]
<PAGE>
TABLE OF CONTENTS
(Not a part of the Lease)
Section Page
1. Lease of Property; Title and Condition.....................................2
2. Use; Quiet Enjoyment; Environmental Matters................................5
3. Term.......................................................................7
4. Rent.......................................................................8
5. Net Lease; Non-Terminability..............................................10
6. Taxes and Assessments; Compliance with Law; Certain Agreements............12
7. Matters of Title; Assignability...........................................15
8. Indemnification...........................................................16
9. Maintenance and Repair....................................................19
10. Alterations; Additions....................................................19
11. Lessee's Right to Contest Real Property Taxes.............................20
12. Condemnation and Casualty.................................................21
13. Early Termination Rights..................................................24
14. Offer to Purchase.........................................................26
15. Procedure Upon Purchase...................................................28
16. Insurance.................................................................29
17. Assignment; Subletting....................................................31
18. Permitted Contests........................................................32
19. Default Provisions........................................................33
20. Additional Rights.........................................................39
21. Notices...................................................................40
22. No Default Certificate....................................................42
23. Surrender.................................................................42
24. Separability; Binding Effect; Governing Law; Non-Recourse.................43
25. Headings and Table of Contents............................................44
26. Waiver of Landlord's Lien.................................................44
28. No Merger.................................................................46
29. Short Form Lease..........................................................46
30. Protection of Instrument Holders..........................................47
31. Additional Lessees........................................................47
32. Certain Representations and Covenants of Lessee...........................48
33. WAIVER OF JURY TRIAL......................................................55
34. Exhibits..................................................................55
35. Special Local Provisions..................................................55
EXHIBIT A - Net Rent; Additional Rent
EXHIBIT B - Form of Supplement for Addition of Parcels
EXHIBIT C - Construction Addendum
EXHIBIT D - Form of Construction Supplement
EXHIBIT E - Form of Interim Supplement
EXHIBIT F - Form of SNDA
EXHIBIT G - Form of Supplement for Additional Lessee(s)
ii
<PAGE>
Table of Defined Terms
(Not a part of the Lease)
Term Section Where Defined
- ---- ---------------------
Acquisition Price Exhibit A
Additional Improvements Section 10.(a)
Additional Lessee Section 31.(a)
Additional Rent Section 4.(b)
Adjustment Date Exhibit A
Advances Preliminary Statement
Agent Preliminary Statement
Applicable Rate Exhibit A
Applicable Spread Exhibit A
Appraised Value Section 27.(b)
Break Costs Exhibit A
Business Day Exhibit A
Casualty Section 12.(a)
Change of Control Section 32.(c)
CLI Preliminary Statement
Closing Costs Section 15.(b)
Closing Date Section 15.(a)
Code Section 32.(a)
Commencement Date Section 3.(a)
Condemnation Section 12.(a)
Construction Advance Section 1.(d)
Construction Failure Payment Exhibit C
Construction Failure Exhibit C
Construction Supplement Section 1.(d)
Contingent Rent Payment Exhibit A
Declaration of Trust Preamble
Default Rate Section 4.(c)
Early Termination Fee Section 13.(a)
Early Termination Notice Section 13.(b)
Environmental Event Section 2.(c)
Environmental Indemnity Agreement Section 8.(e)
Environmental Laws Section 2.(c)
ERISA Section 32.(a)
Event of Default Section 19.(a)
Excess Funds Section 12.(c)
Expiration Date Section 3.(a)
Facility Agreements Section 6.(b)
GAAP Section 32.(c)
Hazardous Materials Section 2.(c)
Impositions Section 6.(a)
Improvements Preliminary Statement
Incipient Default Section 8.(b)
Increased Costs Exhibit A
Indemnified Party Section 8.(a)
Instrument Holders Preliminary Statement
Instruments Preliminary Statement
Insurance Requirements Section 16
Interim Advance Section 1.(e)
Interim Supplement Section 1.(e)
Law Section 5.(a)
Lease Preamble
Lease Guarantee Preliminary Statement
Lease Guarantor Preliminary Statement
Legal Requirements Section 6.(b)
Lessee Preamble
Lessee Parent Preamble
Lessee's Equipment Preliminary Statement
Lessor Preamble
iii
<PAGE>
Term Section Where Defined
- ---- ---------------------
LIBO Business Day Exhibit A
LIBO Rate Reserve Percentage Exhibit A
LIBO Rate Exhibit A
Lien Section 7.(a)
Losses Section 8.(a)
Material Improvements Section 10.(a)
Minimum Price Section 27.(b)
Net Proceeds Section 12.(a)
Net Rent Section 4.(a)
New Improvements Section 1.(d)
Nominal Appraised Value Section 27.(b)
Non-Disturbance Agreement Section 30
Notice Date Section 19.(a)(viii)
Offer Purchase Price Section 15.(b)
Offer to Purchase Section 14.(a)
Parcel(s) Preliminary Statement
Partial Termination Notice Section 13.(a)
Payment Dates Section 4.(a)
PBGC Section 32.(a)
Pep Boys - Delaware Preamble
Pep Boys - California Preamble
Permitted Encumbrances Section 7.(a)
Person Section 32.(c)
Plans Exhibit C
Proceeds Section 12.(a)
Proceeds Trustee Section 12.(a)
Property Preliminary Statement
Required Completion Date Exhibit C
Reserve Costs Exhibit A
SNDA Section 30.(b)
Special Incipient Default Section 8.(b)
Special LIBO Rate Exhibit A
Special Minimum Price Exhibit C
Subsidiary Section 32.(c)
Supplement Section 1.(b)
Tenant Mortgage Section 20.(d)
Term Section 3.(a)
Termination Notice Section 12.(b)
Transaction Agreement Preliminary Statement
Transaction Documents Preliminary Statement
Transaction Mortgage Section 30.(b)
iv
<PAGE>
MASTER LEASE
MASTER LEASE dated as of February 28, 1997 ("Lease"), between STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not individually
but solely in its capacity as Trustee under that certain "Declaration of Trust"
(herein so called) dated of even date herewith (in such capacity, and not
individually, "Lessor"), having an address at Two International Place, Fourth
Floor, Boston, Massachusetts 02110, Attn: Corporate Trust Department, THE PEP
BOYS - MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee Parent"), THE PEP
BOYS MANNY MOE & JACK OF CALIFORNIA, a California corporation ("Pep Boys -
California"), and PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., a Delaware
corporation ("Pep Boys - Delaware"). Lessee Parent, Pep Boys - California, Pep
Boys - Delaware, and such other Subsidiaries of the Lessee Parent as may become
"Additional Lessees" pursuant to Section 31 hereof are herein referred to,
either singly or collectively, as the context may require, as "Lessee". The
primary business address of Lessee for purposes of this Lease is at 3111 W.
Allegheny Avenue, Philadelphia, Pennsylvania 19132.
Preliminary Statement
A. Simultaneously herewith Lessor, Lessee Parent, Citicorp Leasing,
Inc., a Delaware corporation ("CLI"), and Bank of Montreal have entered into a
certain Transaction Agreement (herein so-called) pursuant to which Lessor will
from time to time purchase various parcels of real property (each a "Parcel") to
be leased to one of parties constituting the Lessee hereunder. In each case the
term "Parcel" will be deemed to include all agreements, easements, licenses,
rights of way or use, appurtenances, tenements, hereditaments, and other rights
and benefits belonging or pertaining to such parcels of property or any
improvements thereon.
B. Any improvements from time to time located on the Parcels that are
subject to this Lease (including without limitation, New Improvements, as
hereinafter defined) are collectively referred to as the "Improvements", while
all Parcels and Improvements subject to this Lease at any relevant time are
collectively referred to as the "Property". It is acknowledged that for all
purposes of this Lease the term "Property" does not include any trade fixtures,
inventory, equipment, or other movable personal property owned or leased by
Lessee and used in the conduct of its business ("Lessee's Equipment"), but the
Property does include (and "Lessee's Equipment" does not include) all equipment
and fixtures that constitute a part of the plumbing, HVAC, or other operating
systems of the buildings and improvements themselves.
C. Lessor will acquire the Parcels from time to time using the proceeds
of Advances (as defined in the Transaction Agreement) under certain A-Notes,
B-Notes and Certificates (herein referred to as the "Advances") issued by Lessor
pursuant to the Transaction Agreement to CLI (as the initial "Purchaser") or to
such other financial institutions as may from time to time become "Purchasers"
under the Transaction Agreement.
<PAGE>
D. Pursuant to the Transaction Agreement CLI has been appointed as the
initial administrative agent on behalf of itself and the other Instrument
Holders (as defined in the Transaction Agreement) and Purchasers for the
exercise of certain rights and privileges set out in the Transaction Agreement,
the Declaration of Trust, this Lease, and the other "Transaction Documents".
CLI, acting in such capacity, or any successor administrative agent hereafter
appointed by the Instrument Holders and the Purchasers pursuant to the
Transaction Agreement, is herein referred to as the "Agent".
E. The obligations of the Lessee under this Lease have been guaranteed
by Lessee Parent pursuant to that certain "Lease Guarantee" (herein so-called)
of even date herewith executed by Lessee Parent for the benefit of Lessor,
Agent, and the Instrument Holders. Lessee Parent, in its capacity as the
guarantor of the Lease under the Lease Guarantee, is sometimes herein referred
to as the "Lease Guarantor."
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1. Lease of Property; Title and Condition
(a) In consideration of the rents and covenants herein
stipulated to be paid and performed by the Lessee and upon the terms and
conditions herein specified, the Lessor hereby leases the Property to Lessee,
and the Lessee hereby leases the Property from the Lessor.
(b) If at any time Lessee Parent desires Lessor to acquire a
Parcel, together with any Improvements located thereon, for lease to a Lessee
hereunder, Lessee Parent may request that such Parcels and/or Improvements be
acquired by Lessor and subjected to this Lease, thereby becoming a part of the
"Property" covered hereby. The process for the addition of a Parcel to the
Property is as set out in the Transaction Agreement, and no Parcel shall be
added to the Property until the requirements for the addition of such Parcel to
the Property pursuant to the Transaction Agreement have been satisfied and
Lessor has received Advances under the Instruments pursuant to the Transaction
Agreement to provide Lessor with the necessary funds for such purpose. The
addition of a Parcel to the Property shall be effected by a "Parcel Addition
Supplement" (herein so called) to this Lease executed by Lessor, Lessee Parent
(solely in its capacity as Lease Guarantor, if the Lessee Parent is not also the
Lessee of the Parcel in question) and the Lessee that will lease such Parcel
hereunder (including any new Additional Lessee, if applicable) in substantially
the form attached hereto as Exhibit "B". The Parcel Addition Supplement shall,
among other items included therein, specify the adjustments to the Net Rent and
Contingent Rent Payment payable hereunder as a result of the addition of such
Parcel and Improvements to the Property. Without limitation of the other
applicable provisions of the Transaction Agreement, Lessee acknowledges that
Agent is not required to approve a Parcel Addition Supplement, nor any Advance
under the Transaction Agreement to provide Lessor sums necessary to acquire such
Parcel, if the Debt Rating (as defined in the Transaction Agreement) of Lessee
Parent does not satisfy the requirements of Section 1.04(g)(i) of the
Transaction Agreement.
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(c) The Property is leased to the Lessee by Lessor subject to
(a) all applicable Legal Requirements (as defined below); and (b) all Permitted
Encumbrances (as defined below). The execution of a Parcel Addition Supplement
shall constitute conclusive evidence that the Lessee has examined the Parcel in
question (and any Improvements thereon), and the title thereto, and has found
the same satisfactory for all purposes of this Lease.
(d) If at any time Lessee desires to construct new
improvements ("New Improvements") on any Parcel after such Parcel has been added
to the Property, and Lessee desires to receive a Construction Advance from
Lessor to reimburse Lessee for the costs of such construction, Lessee may do so
upon compliance with the provisions set out below. Any such New Improvements
shall be constructed by Lessee in accordance with the terms and conditions
contained in that certain Construction Addendum (herein so called) attached
hereto as Exhibit "C". Upon completion of any such New Improvements in
accordance with the terms and conditions of the Construction Addendum and
satisfaction of all requirements for the Lessor to receive an Advance (herein
referred to as a "Construction Advance") under the Transaction Agreement in the
amount needed to fund such Construction Advance, Lessor and Lessee shall execute
a "Construction Supplement" (herein so called) to this Lease in substantially
the form attached hereto as Exhibit "D". The Construction Supplement shall,
among other items included therein, specify the adjustments to the Net Rent and
the Contingent Rent Payment which result from the applicable Construction
Advance. Lessor shall have no obligation to (i) make a Construction Advance to
Lessee in respect of any New Improvements or (ii) execute the necessary
Construction Supplement with respect to such New Improvements, unless an Advance
therefor has been made to Lessor in accordance with Article I of the Transaction
Agreement. Any New Improvements which are constructed by Lessee, and for which
Lessee receives reimbursement from Lessor pursuant to the Construction Addendum,
shall not be treated as "Additional Improvements" (as defined in Section 10 of
this Lease) for purposes hereof; but rather the construction of such New
Improvements shall be governed by the Construction Addendum. In no event will
Lessee be entitled to receive any Construction Advance after August 31, 1998,
and further, in no event will Lessee be entitled to any such Construction
Advance if, at the time such Construction Advance would otherwise be made, the
Debt Rating (as defined in the Transaction Agreement) of Lessee Parent does not
satisfy the requirements of Section 1.04(c) and/or Section 1.04(g)(i), as
applicable, of the Transaction Agreement.
(e) In addition to Lessee's right to obtain Construction
Advances upon completion of New Improvements on a Parcel as provided for in
Section 1(d) above, Lessee may obtain "Interim Advances" (herein so-called) to
reimburse Lessee for costs theretofore incurred in connection with the
construction of New Improvements that are not yet completed and are therefore
not yet eligible for Construction Advances pursuant to Section 1(d). Interim
Advances shall be treated as "Construction Advances" and "Advances" for all
purposes of the Transaction Agreement and the other Transaction Documents,
except as otherwise specifically provided in Section 1.04(c) of the Transaction
Agreement. At such time as Lessee desires to obtain an Interim Advance, Lessor
and Lessee shall execute and submit to Agent an "Interim Supplement" (herein
so-called) in substantially the form attached hereto as Exhibit "E". The Interim
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Supplement shall, among other items included therein, specify the adjustments to
the Net Rent and the Contingent Rent Payment which result from the applicable
Interim Advance. Lessor shall have no obligation to (i) make an Interim Advance
to Lessee in respect of any New Improvements or (ii) execute the necessary
Interim Supplement with respect to such New Improvements, unless Lessee has
satisfied all conditions to an Interim Advance under, and an Interim Advance has
been made to Lessor in accordance with, the provisions of Article I of the
Transaction Agreement. It is expressly agreed that any amounts advanced to
Lessee by Lessor hereunder as an Interim Advance shall be treated as a
"Construction Advance" for all purposes of this Lease, including, but without
limitation, for purposes of computing the amount of the Construction Failure
Payment under the Construction Addendum, when applicable.
(f) In connection with the construction of New Improvements on
a Parcel Lessee may demolish Improvements that were located on the Parcel in
question at the time such Parcel was acquired by Lessor so long as the value of
the Improvements to be demolished was not included in any appraised value of the
Parcel in question at the time such Parcel was acquired by Lessor and the amount
of the Advance made by the Purchaser(s) under the Transaction Agreement in
connection with such acquisition did not include any amount in respect of the
Improvements to be demolished. In the event Lessee is in doubt as to whether the
existing Improvements on any given Parcel are eligible for demolition as
aforesaid, Lessee may request confirmation thereof from Agent.
(g) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING
A PORTION THEREOF, OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY,
FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION, OR DURABILITY THEREOF OR
AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR AS TO THE LESSOR'S
TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING AGREED THAT ALL RISKS
INCIDENT THERETO ARE TO BE BORNE SOLELY BY THE LESSEE. IN THE EVENT OF ANY
DEFECT OR DEFICIENCY OF ANY NATURE IN THE PROPERTY OR ANY FIXTURE OR OTHER ITEM
CONSTITUTING A PORTION THEREOF, WHETHER PATENT OR LATENT, THE LESSOR SHALL HAVE
NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO EXCEPT TO THE EXTENT SET
FORTH IN SECTION 8(a) BELOW. THE PROVISIONS OF THIS SUBSECTION 1(f) HAVE BEEN
NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY AND
ALL WARRANTIES, EXPRESS OR IMPLIED, BY THE LESSOR WITH RESPECT TO THE PROPERTY
OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING
PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW, NOW OR HEREAFTER IN
EFFECT. NOTHING IN THIS SECTION 1(f) SHALL BE DEEMED TO LIMIT LESSEE'S
CONTRACTUAL RIGHTS AGAINST LESSOR IN THE EVENT LESSOR VIOLATES ITS SPECIFIC
COVENANTS AND OBLIGATIONS TO LESSEE PURSUANT TO THE TRANSACTION AGREEMENT OR
THIS LEASE, BUT NO SUCH VIOLATION OF THE TRANSACTION AGREEMENT BY LESSOR SHALL
AFFECT LESSEE'S OBLIGATIONS UNDER THIS LEASE.
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2. Use; Quiet Enjoyment; Environmental Matters
(a) Subject to the other specific terms and provisions hereof,
the Lessee may use the Property for any lawful purpose provided that the value
of the Property is not diminished by any such use. It is expressly agreed that
use of the Property for the operation of automobile parts and/or service centers
is a permitted use, subject to compliance with the other terms and conditions
hereunder, and such use will not be deemed to diminish the value of the
Property. Lessee shall not commit or suffer to be committed upon the Property
any acts or conditions that constitute a nuisance under applicable Law. Lessee
hereby agrees not to engage in any activity, or store upon the Property any
goods and equipment, which would render the property coverage insurance
described in Section 16 hereof void. During the Term the Lessor covenants that,
unless an Event of Default (as defined below) has occurred and is continuing,
Lessor will not, and will not permit any party claiming by, through or under the
Lessor to, interfere with the peaceful and quiet possession and enjoyment of the
Property by the Lessee; provided, however, that the Lessor, the Agent, or their
respective successors, assigns and agents may, upon at least ten (10) days prior
written notice to the Lessee (unless an emergency exists, in which case only
such written notice as shall be reasonably practicable under the circumstances
shall be necessary), enter upon and examine the Property or any part thereof.
Lessee will always be permitted to have a representative of Lessee accompany the
representative or agent of Lessor or Agent in question in any inspection if
Lessee desires to do so. It is expressly acknowledged that, as provided in
Section 5 hereof, violation of the foregoing covenant shall not permit Lessee to
withhold rent or terminate this Lease.
(b) The Lessee shall, and it shall require and ensure that any
and all sublessees, employees, contractors, subcontractors, agents,
representatives, affiliates, consultants and any and all other Persons, use,
employ, emit, store, handle, transport, dispose of and/or arrange for the
disposal of, any and all Hazardous Materials (as defined below) in, on or,
directly or indirectly, related to or in connection with the Property in
compliance with all Environmental Laws (as defined below) applicable thereto.
Without limitation of the inspection rights as elsewhere set out herein, if
Lessor or Agent at any time believes that an Environmental Event may have
occurred, Lessor or Agent may, at Lessee's expense, conduct tests of the
Property or portions thereof; provided, however, that in connection therewith:
(i) so long as no Event of Default pursuant to Sections 19(a)(i), (vii), (x),
(xi), (xii) or (xiv) hereof exists, no Event of Default under Section 19(a)(iv)
relating to the failure to have required insurance coverage in place (as opposed
to a failure to satisfy any other Insurance Requirement) exists, and Lessor or
Agent have not taken remedial actions relating to the possession or ownership of
such Parcel as a result of any other Event of Default that may then exist,
Lessor or Agent will first notify Lessee of its desire for tests to be conducted
and request that Lessee perform such tests and provide the results thereof to
Lessor, and so long as Lessee promptly carries out such tests Lessor or Agent
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will not perform such tests directly, and (ii) in the conduct of any tests that
Lessor or Agent may conduct directly Lessor or Agent will take reasonable steps
to interfere as little as reasonably practicable with the conduct of Lessee's
business within the Property. Any failure by the Lessor or Agent or such other
Person to comply with the foregoing provisions of this Section 2 shall not give
the Lessee any right to cancel or terminate this Lease, or to abate, reduce or
make deduction from or offset against any Net Rent, Additional Rent or other sum
payable under this Lease, or to fail to perform or observe any other covenant,
agreement or obligation hereunder, but shall permit Lessee to prohibit Lessor or
Agent from conducting such tests until such requirements are satisfied. Lessee's
obligations hereunder with respect to Hazardous Materials and Environmental Laws
are intended to extend to and cover all matters and conditions in, on, under,
beneath, with respect to, affecting, related to, in connection with or involving
the Property or any part thereof, without regard to whether Lessee has actually
caused or participated in the event or circumstance giving rise to the matter in
question, and without regard to whether the matter in question arose prior to or
during the Term (as hereinafter defined) of this Lease.
(c) For purposes of the foregoing provisions (or where such
terms are used elsewhere in this Lease), the following terms shall have the
meanings specified below:
(A) "Environmental Laws" means any and all federal,
state and local Laws, including without limitation any and all
requirements to register underground storage tanks, relating to: (i)
emissions, discharges, spills, releases or threatened releases of
pollutants, contaminants, Hazardous Materials (as hereinafter defined),
or hazardous or toxic materials or wastes into ambient air, surface
water, groundwater, watercourses, publicly or privately owned treatment
works, drains, sewer systems, wetlands, septic systems or onto land;
(ii) the use, treatment, storage, disposal, handling, manufacturing,
transportation, or shipment of Hazardous Materials (as defined below),
materials containing Hazardous Materials or hazardous and/or toxic
wastes, material, products or by-products (or of equipment or apparatus
containing Hazardous Materials), or (iii) pollution or the protection
of the environment.
(B) "Hazardous Materials" means (i) hazardous
materials, hazardous wastes, and hazardous substances as those terms
are defined under any Environmental Laws, including, but not limited
to, the following: the Hazardous Materials Transportation Act, 49
U.S.C. ss. 1801 et seq., as amended from time to time ("HMTA"), the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., as
amended from time to time ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund
Amendments and Reauthorization Act, 42 U.S.C. ss. 9601 et seq., and as
further amended from time to time ("CERCLA"), the Clean Water Act, 33
U.S.C. ss. 1251 et seq., as amended from time to time ("CWA"), the
Clean Air Act, 42 U.S.C. ss. 7401 et seq., as amended from time to time
("CAA") and/or the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et
seq., as amended from time to time ("TSCA"); (ii) petroleum and
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petroleum products including crude oil and any fractions thereof; (iii)
natural gas, synthetic gas, and any mixtures thereof; (iv) asbestos
and/or any material which contains any hydrated mineral silicate,
including, but not limited to, chrysotile, amosite, crocidolite,
tremolite, anthophylite and/or actinolite, whether friable or
non-friable; (v) PCBs, or PCB-containing materials, or fluids; (vi)
radon; (vii) any other hazardous or radioactive substance, material,
contaminant, pollutant, or waste; and (viii) any substance with respect
to which any federal, state or local Environmental Law or governmental
agency requires environmental investigation, monitoring or remediation.
(C) "Environmental Event" shall mean any
environmental event or the discovery of any environmental condition in,
on, beneath or involving the Property or any portion thereof
(including, but not limited to, the presence, emission or release of
Hazardous Materials and the violation of any applicable Environmental
Law) that in the sole but reasonable judgment of Agent, if not properly
mitigated or remediated, might have a material adverse effect on the
use, occupancy, possession, value or condition of the Property or any
portion thereof.
3. Term
(a) Base Term. The term of this Lease ("Term") shall commence
on the date hereof ("Commencement Date") and continue until August 31, 2003 (the
"Expiration Date").
(b) Extension Provisions.
(i) If Lessee desires to extend the Term of this
Lease for an additional three (3) years beyond the original Expiration Date,
Lessee shall have the right, during the period beginning fifteen (15) months
prior to the Expiration Date and ending fourteen (14) months prior to the
Expiration Date, to advise Lessor and Agent of its desire to so extend the Term.
If Lessee expresses such a desire then during the period ending twelve (12)
months prior to Expiration Date Lessor and Lessee shall negotiate in good faith
toward a mutually acceptable extension of the Term. All terms and conditions of
any such extension (other than the length of the extension), including, without
limitation, the Net Rent and other amounts to be paid by Lessee during such
extended term, shall be subject to negotiation and the mutual agreement of
Lessor and Lessee and approved by Agent on behalf of the Instrument Holders
(unless the Instruments are discharged in full prior to the contemplated
Expiration Date), it being acknowledged and agreed that neither Lessor nor any
Instrument Holder shall be obligated to approve any extension, and their
approval of any requested extension and/or the terms thereof shall be at the
sole discretion of Lessor and such Instrument Holders. If any extension of the
Term is agreed upon then the parties hereto shall execute an amendment to this
Lease setting out the new Expiration Date and all appropriate revisions to this
Lease applicable during such extended period.
(ii) Notwithstanding the foregoing, if Lessee and
Agent desire to extend the Term of the Lease but one or more Instrument Holders
is unwilling to approve such extension, Lessee and Agent shall make reasonable
efforts to find a replacement party willing to purchase the Instruments held by
the Instrument Holders that do not desire to extend the Term, and otherwise to
cooperate reasonably at Lessee's expense to effect the mutually desirable
extension.
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(c) Keys and Locks. On the Expiration Date, Lessee shall
surrender to Lessor all keys to all doors of the Property, and give the Lessor
or Agent an explanation of the combination of all safes or safecabinets, if any,
which are to remain in the Property.
(d) Holdover Rent. Upon the termination of this Lease (whether
by the expiration of the Term of the Lease or otherwise) Lessee must immediately
vacate the Property. If Lessee fails to do so then at the option of Lessor, but
without the execution of a new lease by Lessor and Lessee, Lessee shall
immediately become a tenant from month-to-month of the Property, or any part
thereof, at a Net Rent (as hereinafter defined) equal to the greater of two
hundred percent (200%) of the Net Rent effective in the month immediately
preceding termination of this Lease or one hundred fifty percent (150%) of the
then applicable fair market rental value of the Property, and under all other
terms, conditions, provisions, and obligations of this Lease insofar as the same
are applicable to a tenancy from month-to-month.
4. Rent
(a) Throughout the Term, Lessee shall pay to the Lessor as net
rental (the "Net Rent") the amounts determined in accordance with, and on the
"Payment Dates" (herein so called) described on Exhibit "A" attached hereto.
During the Term, Lessee shall also pay to Lessor the items of Additional Rent
(as hereinafter defined) set out on Exhibit "A". At such time as Improvements or
Parcels are added to the Property, or construction advances are made to Lessee
by Lessor in respect of New Improvements constructed by Lessee on any Parcel,
the Net Rent and Additional Rent payments shall be adjusted as contemplated on
Exhibit "A" and/or on the Supplement by which such Improvements or Parcels are
added to the Property, and/or the Construction Supplement evidencing the
construction advance in question, as applicable.
(b) All amounts that the Lessee is required to pay to the
Lessor pursuant to this Lease (other than Net Rent), including, but not limited
to, any and all amounts payable upon expiration of the Lease Term and/or upon
transfer or purchase of the Property, together with amounts specifically
denominated as such on Exhibit "A" as well as every fine, penalty, interest and
cost that may be added for non-payment or late payment thereof, shall constitute
"Additional Rent". Lessor shall give Lessee notice of any Additional Rent due
hereunder promptly after it has knowledge of such Additional Rent, and shall use
its best efforts to notify Lessee in advance of the due date and amount of such
Additional Rent; provided that failure to give such prompt notice shall not
relieve the Lessee of its obligation to pay such Additional Rent, subject to, as
applicable, the Lessee's rights, if any, under Section 18 hereof.
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(c) The Lessee shall pay on demand to the Lessor interest at a
rate (the "Default Rate") equal to the lesser of (i) a rate that is 200 basis
points (2%) in excess of the rate quoted from time to time by Citibank, N.A.,
New York, as its "prime" or "base reference" rate for short-term floating rate
commercial loans (whether or not such rate is actually charged in any particular
instance), adjusted daily, or (ii) the highest lawful rate, on all amounts
payable by it to the Lessor hereunder from the due date thereof until paid in
full, subject to Section 4(h) below. Any such interest at the Default Rate shall
be paid at the same place and in the same manner as Net Rent (as hereinafter
provided).
(d) All amounts payable by the Lessee hereunder shall be paid
in lawful money of the United States of America. All Net Rent payments shall be
made to Lessor by 11:00 A.M. (New York City Time) on the applicable Payment
Date. All Additional Rent or other sums due hereunder shall also be paid by 1:00
p.m. (New York City Time) on the applicable due date. All payments shall be made
by wire transfer or other immediately available funds. Unless and until Lessee
is otherwise notified in writing by Agent and Lessor, all payments of Net Rent
or Additional Rent hereunder shall be paid to Lessor as follows:
State Street Bank and Trust Company
c/o Citibank, N.A.
New York, New York
Account # 40685147
ABA #021000089
Re: 1997 Pep Boys II
Any payments of rental or other amounts hereunder by Lessee made other than in
accordance with the foregoing requirements shall be at Lessee's peril and shall
not be credited for the benefit of Lessee hereunder unless and until such funds
are actually received by Lessor. If any payment of Net Rent, Additional Rent, or
other sum due hereunder is timely made by Lessee but Lessor, as Trustee under
the Declaration, fails to make timely distribution of the amounts in question to
the Instrument Holder(s) entitled to receive such amounts, Lessee shall have no
responsibility for any late fees or other compensatory payments due to the
Instrument Holders in respect of such late payment by the Trustee, nor subject
to any other consequences arising therefrom.
(e) Agent shall endeavor to send to Lessee on a monthly basis
an invoice stating the amount of Net Rent due for the month in question. While
the delivery of such an invoice is not a condition precedent to Lessee's
obligation to pay the Net Rent due hereunder, if Agent fails to sent an invoice
Lessee shall not be deemed to be in default of its obligations to pay Net Rent
hereunder if, on the date the Net Rent is due hereunder Lessee (i) pays to
Lessor an amount equal to the amount of Net Rent that was due and payable for
the preceding month hereunder, (ii) delivers to Agent a written notice that
Lessee did not receive an invoice for the month in question and is therefore
unable to compute the exact amount due for the month in question, and (iii)
Lessee makes any reconciliation payments necessary such that Lessee pays the
correct amount of Net Rent hereunder for the month in question within five (5)
Business Days after Lessee receives a reconciliation invoice. If the amount
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actually paid by Lessee is more than the Net Rent due for the month, Lessor
shall refund the overage to Lessee within five (5) Business Days after the
reconciliation invoice is produced by Agent. Any positive difference between the
amount of Net Rent due to Lessor and the actual amount paid by Lessee pursuant
to the foregoing provision shall bear interest at the Applicable Rate for the
period between the date the Net Rent payment is due hereunder and the date such
reconciliation payment is actually made by Lessee, and in the event the actual
payment of Net Rent made by Lessee as aforesaid is more than the amount of Net
Rent due for the month in question, any credit or refund to Lessee shall
likewise bear interest at the Applicable Rate from the date the Net Rent was
paid by Lessee until such refund payment is made.
(f) The Lessee shall perform all of its obligations under this
Lease at its sole cost and expense and shall pay, when due and without notice or
demand (except as otherwise provided in this Lease), all amounts due hereunder.
The Lessee agrees to pay on demand (i) all Impositions (as defined in Section 6)
(subject to Lessee's rights pursuant to paragraph 6) and (ii) all reasonable
fees and expenses of the counsel to each of Lessor and Agent, in connection with
the preparation, execution, delivery, modification and amendment of this Lease
and any other documents to be delivered in connection herewith or therewith or
in connection with or arising out of any refinancing or refunding thereof
requested or consented to by Lessee.
(g) In the event that Lessee shall fail to pay any portion of
any installment of Net Rent on the day on which such installment is due, to the
extent permitted by applicable law there shall be added to such unpaid amount a
late charge of two percent (2%) of the amount owed in order to compensate Lessor
and Agent for the extra administrative expenses incurred. Any such late charges
shall be paid by Lessee in the same manner as hereinabove provided for the
payment of Net Rent. The foregoing provision shall not be deemed to limit
Lessor's right to receive interest at the Default Rate with respect to such
payment as provided in subsection 4(c) above.
(h) Notwithstanding the foregoing Lessor shall waive any late
charges and/or any extra amounts due by Lessee as a result of the application of
the Default Rate to late payments made by Lessee hereunder on up to three (3)
occasions during the Term so long as the payment in question is made during the
applicable grace or cure period such that the late payment in question does not
become an Event of Default hereunder.
5. Net Lease; Non-Terminability
(a) This Lease is a net lease and, except as otherwise
expressly provided in this Lease, any present or future Law (as defined below)
to the contrary notwithstanding, shall not terminate, nor shall the Lessee be
entitled to any abatement, reduction, set-off, counterclaim, defense or
deduction with respect to any Net Rent, Additional Rent or other sum payable
hereunder. Without limitation of the generality of the foregoing, except as
otherwise expressly provided in this Lease, the obligations of the Lessee shall
not be affected by reason of: (i) any damage to or destruction of the Property
or any part thereof by any cause whatsoever (including, without limitation,
fire, Casualty (as defined in Section 12) or act of God or enemy or any other
force majeure event); (ii) any Condemnation (as defined in Section 12),
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including, without limitation, a temporary Condemnation of the Property or any
part thereof; (iii) any prohibition, limitation, restriction or prevention of
the Lessee's use, occupancy or enjoyment of the Property by any person; (iv) any
matter affecting title to the Property or any part thereof; (v) any eviction of
the Lessee from, or loss of possession by the Lessee of, the Property or any
part thereof, by reason of paramount title or otherwise; (vi) any default by the
Lessor hereunder or under any other agreement; (vii) the invalidity or
unenforceability of any provision hereof or the impossibility or illegality of
performance by the Lessor or the Lessee or both; (viii) any action of any
federal, state or local governmental authority; or (ix) any other cause or
occurrence whatsoever, whether similar or dissimilar to the foregoing. The
parties intend that the obligations of the Lessee hereunder shall continue
unaffected unless such obligations shall have been modified or terminated
pursuant to an express provision of this Lease. For purposes hereof "Law" means
all statutes, laws, ordinances, rules, regulations, orders, writs, injunctions,
or decrees of any municipal, state, federal, foreign, or territorial government,
or any court, governmental body, subdivision, agency, department, commission,
board, bureau, or instrumentality thereof.
(b) The Lessee shall remain obligated under this Lease in
accordance with its terms and shall not take any action to terminate, rescind or
avoid this Lease notwithstanding any bankruptcy, insolvency, reorganization,
liquidation, dissolution or other proceeding affecting the Lessor or any action
with respect to this Lease which may be taken by any trustee, receiver or
liquidator or by any court. Except as expressly permitted in this Lease, the
Lessee waives all rights to terminate or surrender this Lease, or to any
abatement or deferment of Net Rent, Additional Rent or other sums payable
hereunder. The Lessee shall remain obliged under this Lease in accordance with
its terms and the Lessee hereby waives any and all rights now or hereafter
conferred by Law or otherwise to modify or to avoid strict compliance with its
obligations under this Lease. All payments made to the Lessor hereunder as
required hereby shall be final and the Lessee shall not seek recovery of, nor
shall Lessee be entitled to recover, any such payment or any part thereof for
any reason whatsoever, absent manifest error.
(c) Lessee shall be entitled to bring a separate action
against Lessor, Agent, or the Purchasers, as applicable, to enforce their
respective obligations to Lessee hereunder or under the other Transaction
Documents, but no such action (including any judgment received by Lessee in
connection therewith) shall ever permit or grant Lessee the right to terminate
this Lease or create any right of abatement, set-off, or other reduction or
suspension of the payments due by Lessee hereunder.
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6. Taxes and Assessments; Compliance with Law; Certain Agreements
(a) The Lessee shall pay or cause to be paid, subject to
Section 18, all Impositions before any fine, penalty, interest or cost may be
added or any default may be claimed or any termination or foreclosure or
forfeiture procedures for nonpayment may be commenced. If any Imposition may
legally be paid in installments, such Imposition may be so paid in installments
provided that the Lessee shall pay all such installments due and payable on or
prior to the Expiration Date or earlier termination of this Lease. "Impositions"
means (i) all taxes, assessments, levies, fees, water and sewer rents and
charges, inspection fees and other authorization fees and all other governmental
charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, of every character (including all penalties or interest thereon)
which, at any time prior to or during the Term, may be imposed or levied upon or
assessed against or be a Lien (as defined in Section 7) upon (A) the Property or
any part thereof, or (B) this Lease or the leasehold estate hereby created, or
which arise in respect of the ownership, operation, occupancy, possession, use,
non-use or condition of the Property or any part thereof; (ii) all gross
receipts or similar taxes imposed or levied upon, assessed against or measured
by any Net Rent, Additional Rent or other sum payable hereunder; (iii) all
sales, value added, use and similar taxes at any time levied, assessed or
payable on account of the ownership, operation, occupancy, use, leasing, or
subleasing of the Property or any part thereof; (iv) all charges, levies, fees,
rents or assessments for or in respect of utilities, communications and other
services rendered or used on or about the Property or any part thereof; and (v)
payments in lieu of each of the foregoing. "Impositions" shall not be deemed to
include any taxes or charges imposed upon any sale or transfer of ownership
interests in the Lessor, nor any "Excluded Charges" (as defined in the
Transaction Agreement).
(b) Subject to Section 18, the Lessee shall comply with, and
cause the Property to comply with, all Legal Requirements. "Legal Requirements"
means (i) all Laws, foreseen or unforeseen, ordinary or extraordinary, or
arising from any restriction of record or otherwise, which now or at any time
hereafter may be applicable to the Lessor, as owner of the Property, the Lessee,
as lessee hereunder, or the Property or any part thereof, or any of the
adjoining sidewalks or vaults, if any, or the ownership, operation, occupancy,
use, non-use or condition of the Property or any part thereof and any other
governmental rules, orders and determinations now or hereafter enacted, made or
issued, and applicable to the Lessor, as owner of the Property, the Lessee, as
lessee hereunder, or the Property or any part thereof or the ownership,
construction, operation, mortgaging, occupancy, possession, use, non-use or
condition thereof whether or not presently contemplated; and (ii) all
agreements, permits, covenants, conditions, and restrictions applicable to the
Property or any part thereof or the ownership, operation, mortgaging, occupancy,
use, non-use, or condition thereof, including but not limited to, all Facility
Agreements (as defined below) and all such Laws (including, without limitation,
carrying out all necessary or appropriate remediation or other response to any
Environmental Event in accordance with all applicable Environmental Laws),
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contracts, agreements, covenants, conditions and restrictions which require
structural, unforeseen or extraordinary changes in the Property or any part
thereof and all matters of public record. Without limitation, to the extent that
any portion of the Property currently is included in the same subdivision lot or
tax parcel with other property that is not included in the Property, Lessee
shall proceed to promptly cause such portions of the Property to be replatted
and/or to effect such other legal or administrative actions as may be required
to cause each portion of the Property to be in a legal subdivision lot and tax
parcel that does not include any property that is not a part of the Property;
provided, however, that in isolated cases Lessee may, in lieu of any such replat
or other proceedings, provide title insurance endorsements, bonds,
indemnification or other assurances satisfactory, in Agent's reasonable
discretion, to assure that neither Lessor nor any successor-in-title thereto
shall bear any risk of cost or loss as a result of any such subdivision lot or
tax lot discrepancy. For purposes hereof "Facility Agreements" mean all
contracts or agreements relating to or affecting the Property or the operation
thereof or any portion thereof, including, without limitation, any easements,
declarations, covenants, or restrictions affecting the Property, and any other
agreement or arrangement that constitutes a Permitted Encumbrance.
(c) The Lessee shall fully and promptly keep, observe, perform
and satisfy, on behalf of Lessor, any and all obligations, conditions, covenants
and restrictions of or on the Lessor under any and all Facility Agreements, or
contest any obligations or alleged obligations thereunder, so that there will be
no default thereunder (other than a default as to which remedial actions are
stayed or suspended pending a contest of the obligations in question pursuant to
Section 18 hereof) and so that the other parties thereunder shall be and remain
at all times obliged to perform their obligations thereunder. To the extent
within its control Lessee shall not permit to exist any condition, event or fact
that could allow or serve as a basis or justification for any such person to
avoid such performance or to impose or enforce a Lien on the Property or any
portion thereof as a result of the non-performance by Lessee under any Facility
Agreement. Lessor agrees that without Lessee's consent, which consent shall not
be unreasonably withheld, Lessor shall not terminate or modify any Facility
Agreement. Further, at the request and expense of Lessee, Lessor agrees to
reasonably cooperate with Lessee in connection with the creation of additional
Facility Agreements and/or with any amendment or modification of any existing
Facility Agreement that Lessee may deem desirable; provided, that no Facility
Agreement shall be created or amended without the prior written consent of
Agent, which consent shall not be unreasonably withheld. Lessor hereby further
authorizes Lessee to act on Lessor's behalf pursuant to the Facilities
Agreements in the ordinary course of business related to the routine daily
operation of the Property; provided, that (i) prompt written notice of any
material action taken or notice received by Lessee with respect to any Facility
Agreement shall be given by Lessee to Agent, (ii) no consent, approval,
modification, amendment, or waiver under any Facility Agreement nor any status
report, estoppel certificate, or similar statement or certification with respect
to any Facility Agreement may be given by Lessee on Lessor's behalf without the
prior written approval of Agent (which approval shall not be unreasonably
withheld) unless the Facility Agreement in question has been approved (or deemed
approved) by Agent and either the Facility Agreement in question or another
instrument approved by the Agent contains an express delegation to Lessee (in
its capacity as such) of the right to issue the item in question or of the right
to provide such consent or approval on behalf of Lessor.
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(d) Lessee's execution of a Supplement adding any Parcel or
Improvements to the Property shall constitute Lessee's representation and
warranty to Lessor, Agent, and to each of the Instrument Holders that as of the
date of such Supplement, to Lessee's knowledge: (i) there is no default, or
event or circumstance which, with notice and/or the passage of time could result
in a default, by Lessee or, to Lessee's knowledge, any other party under any
Facility Agreement applicable to such Parcel or Improvements, (ii) Lessee has
paid all amounts currently due and payable with respect to the Property or any
portion thereof under the terms of any Facility Agreement, and (iii) Lessee has
received no notice of, nor does Lessee have any other knowledge of, any events,
circumstances, or facts that have resulted in, or could result in, the loss or
material reduction or interruption of any of the services, easements,
rights-of-way, or other benefits inuring to the applicable Parcel under any of
the Facility Agreements, and/or the imposition of any Lien or charge of any kind
upon the applicable Parcel or any portion thereof pursuant to any Facility
Agreement. Without limitation of any other indemnifications or other rights
granted for the benefit of Lessor, Agent, and/or the Instrument Holders herein,
Lessee expressly agrees to indemnify, save, and hold harmless Lessor, Agent,
each Instrument Holder, and their respective successors and assigns from and
against any breach of any of the representations, warranties, or covenants
regarding the Facility Agreements contained in this Section 6.
(e) If any Improvements situated on any Parcels at any time
during the Term shall encroach upon any property, street or right-of-way
adjoining or adjacent to such Parcel, or shall violate the agreements or
conditions contained in any Facility Agreements affecting such Parcel or any
part thereof, or shall impair the rights of others under or hinder or obstruct
any easement or right-of-way to which such Parcel is subject, then, promptly
after the written request of Lessor or Agent, or any person affected by any such
encroachment, violation, impairment, hindrance or obstruction, Lessee shall, at
its expense, either (i) contest such matter in accordance with Section 18, (ii)
obtain effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation, impairment, hindrance or
obstruction whether the same shall affect Lessor, Lessee or both, (iii) make
such changes in the Improvements and take such other action as shall be
necessary to remove such encroachments, hindrances or obstructions and to end
such violations or impairments, including, if necessary, the alteration or
removal of any Improvement (subject to Lessor's and Agent's consent if required
by Section 10(a) hereof), or (iv) provide to Lessor affirmative title insurance
endorsements, bonds, or other assurances satisfactory to Agent, in its
discretion, to assure that neither Lessor nor any successor-in-title thereto
shall bear any risk of cost or loss as a result of the existence of such
encroachment. Lessor and Agent will not make request for correction of any minor
encroachments or similar minor matters unless either (A) a governmental entity
or a person or entity having an interest (which need not be an ownership
interest) in the property affected by such matter requests correction thereof,
or (B) in Lessor's or Agent's good faith judgment the existence of such
encroachment has a materially adverse effect upon the ownership, marketability,
and/or financeability of the Parcel or portion of the Property to which such
encroachment or other matter relates.
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(f) In those circumstances set out in this Section in which
Lessee is authorized or permitted to take an action only after the consent or
approval of the Agent or Lessor is authorized or permitted to execute Facility
Agreements or other agreements requested by Lessee only after the consent or
approval of Agent, Agent shall be deemed to have approved the action, or
execution by Lessor of the document, in question if no disapproval is given to
Lessee by Agent within ten (10) Business Days after Lessee's written request for
approval where such request for approval (A) contains a reasonably detailed
description of the actions which Lessee proposes to take if the request is
approved (including copies of documents proposed to be executed or delivered)
and (B) contains a specific notice to Agent that the request will be deemed
approved if not disapproved within such period. If Agent disapproves any
request, Agent shall state its reasons for disapproval (which may include lack
of sufficient information regarding the request or, in any appropriate case,
insufficient time to fully evaluate the request). If Agent fails to notify
Lessee within such ten (10) Business Day period that the information provided by
Lessee regarding the requested approval is inadequate for Agent's needs Agent
shall be deemed to have waived any right to refuse a requested approval on the
basis of inadequate information (but the foregoing shall not be deemed to limit
any rights or claims that the Lessor or Agent may have if the description or
other information provided by Lessee in connection with a requested approval is
inaccurate, misleading, or fraudulent). Agent shall deliver to Lessor written
authorizations or directions to evidence Agent's approval of actions or
documents that have been approved (or deemed approved) by Agent as aforesaid.
Following any such approval or deemed approval by Agent, and receipt by Lessor
of the aforesaid authorizations or directions, Lessor shall execute any approved
Facility Agreement or other approved agreements as requested by Lessee.
(g) Within five (5) Business Days after receipt thereof by
Lessor, unless it is apparent that such materials have independently been
received by Lessee or Agent, as applicable, Lessor shall deliver to Lessee, with
a copy to Agent, any tax bills, condemnation notices, mechanics' lien claims,
legal pleadings, notices relating to Facility Agreements or Permitted
Encumbrances, or other material communications relating to the Property.
7. Matters of Title; Assignability
(a) Subject to Section 18, and except for the Permitted
Encumbrances, the Lessee shall not create or permit to exist, and shall promptly
remove and discharge, any mortgage, charge, lien, security interest,
encumbrance, right or claim (each, a "Lien") upon this Lease or the Property or
any part thereof or interest therein, or upon any Net Rent, Additional Rent or
other sum payable hereunder, which Lien arises for any reason, including,
without limitation, any and all Liens which arise out of the use, condition,
occupancy, construction, possession, repair or rebuilding of the Property or any
part thereof (including, without limitation, by reason of a default under any
Facility Agreement) or by reason of labor or materials furnished or claimed to
have been furnished to the Lessee or for the Property or any part thereof.
"Permitted Encumbrances" means, with respect to the Property but only to the
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extent applicable thereto (i) rights reserved to or vested in any municipality
or public authority by the terms of any right, power, franchise, grant, license,
permit or provision of Law affecting the Property to (A) terminate such right,
power, franchise, grant, license or permit, provided that the exercise of such
right would not materially impair the use of the Property or materially and
adversely affect the value thereof, or (B) purchase, condemn, appropriate or
recapture, or designate a purchaser of, the Property; (ii) any liens thereon for
Impositions and any liens of mechanics, materialmen and laborers for work or
services performed or materials furnished in connection with the Property, which
are not due and payable or which are not delinquent to the extent that penalties
for nonpayment may be assessed (or with respect to which title insurance
endorsements, bonds, or other security and assurances reasonably satisfactory to
Agent have been provided); (iii) easements, rights-of-way, servitudes,
restrictions and other minor defects, encumbrances, and irregularities in the
title to the Property approved by Agent as of the date the Parcel in question is
added to the Property and described in the owner's policies of title insurance
issued to Lessor, as owner of the Parcels, in connection with Lessor's
acquisition of the Parcels; (iv) rights reserved to or vested in any
municipality or public authority to control or regulate use of the Property or
to use the Property in any manner; (v) this Lease; and (vi) any Transaction
Documents.
(b) The Lessor shall not create any Lien upon this Lease, the
Property, or any part thereof except this Lease, the Liens securing the
obligations of Lessor and/or Lessee under the Transaction Documents, and any
Liens that may arise in respect of any action taken by the Lessor, Agent or the
Instrument Holders from time to time in connection with the enforcement of any
rights under this Lease or the Transaction Documents.
8. Indemnification
(a) The Lessee shall pay, protect, indemnify and hold harmless
each Indemnified Party (as defined below) from and against, and shall defend all
actions against any Indemnified Party with respect to, any and all liabilities
(including, but not limited to, liability in tort (whether strict liability or
otherwise)), losses, damages, costs, expenses (including, but not limited to,
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature whatsoever (collectively, "Losses") arising
from (i) any injury to or death of any person, or damage to or loss of property,
or any other event or circumstance occurring on or resulting from activities on
the Property, or resulting from or in connection with the ownership, leasing,
subleasing, operation, occupancy, possession, use, non-use or condition of the
Property, (ii) any Environmental Event, Incipient Default or Event of Default
hereunder, (iii) any act or omission of the Lessee or its agents, contractors,
licensees, sublessees, invitees, representatives or any Person for whose conduct
the Lessee is legally responsible on or relating to or in connection with the
ownership, leasing, subleasing, operation, management, maintenance, occupancy,
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possession, use, non-use or condition of the Property; (iv) performance of any
labor or services or furnishing of any materials or other property in respect of
the Property or any part thereof; (v) any permitted contest referred to in
Section 18, provided, that no Indemnified Party shall be entitled to payment or
indemnification with respect to any amounts voluntarily paid by such Indemnified
Party in respect of matters being properly contested by Lessee under such
Section 18; or (vi) any violation by the Lessee of any contract or agreement to
which the Lessee is a party or of any Legal Requirement or Insurance
Requirement, in each case affecting any Indemnified Party or the Property, or
any part thereof or the ownership, operation, occupancy, possession, use,
non-use or condition thereof and in each case regardless of the acts, omissions
or negligence of any Indemnified Party (except as otherwise set forth in the
following proviso); provided, however, that the Lessee shall not be required to
indemnify any Indemnified Party hereunder against any such claims to the extent
arising solely as a result of the fraud, gross negligence or willful misconduct
of the Indemnified Party in question. IT IS THE EXPRESS INTENT AND UNDERSTANDING
OF THE PARTIES THAT THE FOREGOING PROVISION DOES CONSTITUTE AN INDEMNIFICATION
BY THE LESSEE OF THE INDEMNIFIED PARTIES OF AND FROM LOSSES ARISING OUT OF THE
NEGLIGENCE OF THE RESPECTIVE INDEMNIFIED PARTIES OR ANY OF THEM; PROVIDED,
HOWEVER, THAT THE PARTIES AGREE AND ACKNOWLEDGE THAT NO INDEMNIFIED PARTY SHALL
BE ENTITLED TO INDEMNIFICATION HEREUNDER FOR DAMAGES OR LOSSES TO THE EXTENT
CAUSED BY THE FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED
PARTY IN QUESTION. In connection with any such defense by Lessee, Lessee may
file answers and pleadings in the name of and on behalf of the applicable
Indemnified Party(ies) where necessary. For purposes of this Section 8,
"Indemnified Party" means the Lessor (in both its capacity as Trustee under the
Declaration of Trust and in its individual capacity), each Instrument Holder,
Agent (and any successor agent), and any officer, director, employee or agent of
any of the above. "Incipient Default" means the occurrence of any event or the
existence of any circumstance that would entitle Agent or Lessor to send a
notice requiring remedial action by Lessee which, if not carried out by Lessee
within the applicable grace or cure period as provided in the applicable
subsection of Section 19(a) hereof, would result in the existence of an Event of
Default hereunder.
(b) The obligations of the Lessee under this Section 8 shall
survive the expiration or any termination of this Lease (whether by operation of
Law or otherwise) for all matters described in this Section 8 which occur or
arise prior to such expiration or termination or arise out of or result from
facts, events, claims, liabilities, actions or conditions occurring, arising or
existing on or before such expiration or termination; provided, that the
foregoing shall not be construed to extend or toll any applicable statute of
limitations with respect to the obligations of Lessee hereunder. In case any
action shall be brought against any Indemnified Party in respect of which
indemnity may be sought against the Lessee, such Indemnified Party shall
promptly notify the Lessee in writing, but failure to give such prompt notice
shall not relieve the Lessee from any liability hereunder except to the extent
Lessee is actually prejudiced by such failure to give prompt notice. So long as
no Event of Default exists, and no Incipient Default exists with respect to the
matters covered in Sections 19(a)(i), (iv), (vii), (x), (xi), or (xiv) (any such
Incipient Default being referred to as a "Special Incipient Default") has
occurred and is continuing hereunder, the Lessee, at its own expense, may defend
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any action brought against an Indemnified Party, including the employment of
counsel reasonably satisfactory to such Indemnified Party and the payment of all
reasonable expenses thereof. Any Indemnified Party shall have the right to
employ separate counsel in any such action and to consult with the Lessee
regarding the defense thereof, provided that, except in the circumstances
described below any such separate counsel shall be employed at the sole cost and
expense of the Indemnified Party, and provided, further, that, except as
provided below, the Lessee shall at all times control such defense. If the
Lessee shall have failed to employ counsel reasonably satisfactory to such
Indemnified Party (or, upon notice from the Indemnified Party that the counsel
employed by Lessee is not satisfactory, if Lessee has failed to discharge
counsel previously employed and to retain new counsel that both Lessee and the
Indemnified Party agree upon), the fees and expenses of counsel to each
Indemnified Party shall be paid by the Lessee. Further Lessee shall pay all of
the Losses of such Indemnified Party incurred in respect of such defense if
either (i) the Lessee shall elect in writing not to assume the defense or,
having assumed such defense, shall thereafter fail to prosecute diligently such
defense thereof, or (ii) if any Special Incipient Default or Event of Default
has occurred and is continuing hereunder. Further, if any Indemnified Party
shall have been advised by counsel chosen by it that there may be one or more
legal defenses available to such Indemnified Party that are different from or
additional to those available to Lessee and the relief sought against the
Indemnified Party is other than payment of monetary damages, the Indemnified
Party may assume the defense of such loss or action once tendered and Lessee
will reimburse such Indemnified Party for the reasonable fees and expenses of
any counsel retained by the Indemnified Party. So long as Lessee is diligently
defending the claim in question as aforesaid or, if the Indemnified Party has
assumed defense thereof, so long as Lessee is paying the costs of such separate
defense in accordance herewith, the Lessee shall not be liable for any
settlement of any action without its consent. No settlement of any such action
may be made by the Lessee without the Indemnified Party's consent; provided,
however, such consent shall not be necessary if the settlement results in an
unconditional and final release of the Indemnified Party without the admission
by the Indemnified Party of guilt, complicity or culpability.
(c) Upon demand for payment by any Indemnified Party of any
Losses incurred by it for which indemnification is sought, along with a brief
description of the nature and extent of the Losses as well as the circumstances
under which indemnification is sought, Lessee shall pay when due and payable the
full amount of such Losses to the appropriate party, unless the Lessee shall
have assumed the defense of such Loss or action once tendered and is diligently
prosecuting the same and Lessee has taken all action as may be reasonably
necessary to prevent (i) the collection of such Losses from the Indemnified
Party; (ii) the sale, forfeiture or loss of the Property or any part thereof
during such defense of such action; and (iii) the imposition of any civil or
criminal liability for failure to pay such Losses when due and payable.
(d) Notwithstanding the foregoing, if a claim that is subject
to the indemnification provisions set out above is made seeking monetary damages
only and the maximum exposure of the Indemnified Party is less than
$1,000,000.00, then so long as the Lease Guarantor is in compliance with the
financial covenants set out in the Lease Guarantee, Lessee may defend or settle
such matter at its discretion and in the name of the Indemnified Party without
involvement of the Indemnified Party in the defense or settlement thereof.
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(e) Lessee acknowledges the execution, of even date herewith,
of the "Environmental Indemnity Agreement" (herein so-called) wherein Lessee has
indemnified Lessor, Agent and the Instrument Holders for various matters
relating to Hazardous Substances and Environmental Laws relating to the
Property. The indemnification rights provided for herein are in addition to, and
not in lieu of, indemnification rights granted in the Environmental Indemnity
Agreement.
9. The Lessee, at its own expense, will manage and maintain the
Property in good repair and condition, subject to normal wear and tear. Further,
Lessee will take all action, and will make all changes and repairs, structural
and nonstructural, foreseen and unforeseen, ordinary and extraordinary, to the
Property from time to time as may be required to keep the Property in compliance
with any Legal Requirement or Insurance Requirement at any time in effect. The
Lessor shall not be required to, and Lessee hereby waives any right to require
the Lessor to, manage, maintain, repair or rebuild the Property or any part
thereof and the Lessee waives any and all rights it may now or hereafter have to
make any repairs at the expense of the Lessor pursuant to any Legal Requirement,
Insurance Requirement, or otherwise, at any time in effect. All repairs,
replacements and rebuilding by the Lessee hereunder shall immediately become and
shall remain part of the Property, subject to this Lease.
10.Alterations; Additions.
(a) At any time, so long as no Event of Default has occurred,
and no Special Incipient Default then exists, the Lessee may, at its own
expense, make Additional Improvements to the Property; provided, however, that
(i) the fair market value of the Property shall not be lessened thereby, and
(ii) such work shall be completed in a good and workmanlike manner free and
clear of any Liens for labor, services or materials (subject to Section 18
hereof) and in compliance with all applicable Legal Requirements and Insurance
Requirements, (iii) the structural integrity of the Improvements shall not be
impaired thereby, and (iv) any "Material Improvements" (as defined below) shall
have been approved in writing by Agent prior to commencement thereof (which
approval shall not be unreasonably withheld or delayed). "Additional
Improvements" means additions or alterations of the Improvements made by or for
the Lessee and "Material Improvements" means Additional Improvements which have
a cost in excess of $350,000.00 (for this purpose related segments of Additional
Improvements on any given Parcel (but not similar activities occurring on
separate Parcels) shall be aggregated). The installation or modification of
Lessee's Equipment inside any Improvements will not be treated as Additional
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Improvements for purposes hereof. The Lessee shall be permitted, with the
consent of the Agent (which consent shall not be unreasonably withheld), at any
time during, or upon the expiration or termination of, the Term, and at its sole
cost and expense, to remove any such Additional Improvements to the Property;
provided, however, that, in the reasonable discretion of Agent, such removal
shall not impair the use or reduce the fair market value of the Property below
its fair market value on commencement of the Term and that such removal shall
not cause a violation of any Legal Requirement or Insurance Requirement. Any
damage to the Property or any part thereof caused by such removal shall promptly
be repaired by the Lessee and the Property or part thereof shall be restored to
its condition (or the reasonable equivalent thereof) as it existed immediately
prior to the construction of such Additional Improvements, at the Lessee's sole
cost and expense. The Lessee may place upon the Property or any part thereof any
inventory, fixtures, machinery, equipment or other property belonging to the
Lessee or third parties and remove the same at any time during the Term and at
the request of the Lessor or Agent shall remove the same at the expiration or
termination hereof unless the Lessee shall have purchased the Property pursuant
to the terms hereof; provided that any damage to the Property or any part
thereof caused by such removal shall promptly be repaired by the Lessee and the
Property or such part thereof shall be restored to its condition (or the
reasonable equivalent thereof) as it existed immediately prior to the placement
of any such property upon the Property, all at the Lessee's sole cost and
expense.
(b) If any request is made by Lessee for approval by Agent of
the construction of proposed Additional Improvement and/or the removal thereof
by Lessee where such approval is required, the request in question shall be
deemed approved if Agent has not given Lessee notice of disapproval within ten
(10) Business Days after Lessee's written request for approval where such
request for approval (A) contains a reasonably detailed description of the
action which Lessee proposes to take (including the Additional Improvements to
be constructed or demolished, and the effect thereof upon the value and utility
of the affected Parcel and the Improvements thereon), and (B) contains a
specific notice to Agent that the request will be deemed approved if not
disapproved within such period. If Agent disapproves any request, Agent shall
state its reasons for disapproval (which may include lack of sufficient
information regarding the request or, in an appropriate case, insufficient time
to fully evaluate the request). If Agent fails to notify Lessee within such ten
(10) Business Day period that the information provided by Lessee regarding the
requested approval is inadequate for Agent's needs Agent shall be deemed to have
waived any right to refuse a requested approval on the basis of inadequate
information (but the foregoing shall not be deemed to limit any rights or claims
that the Lessor or Agent may have if the description or other information
provided by Lessee in connection with a requested approval is inaccurate,
misleading, or fraudulent).
(c) All Additional Improvements shall become and remain part
of the Property and shall be subject to this Lease, unless and until removed by
the Lessee in accordance with subsection 10(a).
11. The Lessee, at its own cost and expense, shall have the sole right,
at any time, to seek a reduction in the assessed valuation of the Property or to
contest any real property taxes for the Property as provided for in Section 18
hereof. If required by any applicable Legal Requirement the proceeding or
contest may be brought by Agent in the name of Lessor as the owner of the
Property but Lessee shall pay any and all costs and expenses incurred by, or
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that become the obligation of, the owner of the Property in connection
therewith. Lessee, on final determination of the proceeding or contest, shall,
subject to Section 18 hereof, immediately pay, discharge and satisfy any
decision or judgment rendered, together with all costs, interest, and penalties
incidental to the decision or judgment. Any tax refund or similar amount
received by Lessor as a result of any such contest by Lessee and attributable to
periods when the tax in question was paid by Lessee shall be received for the
benefit of Lessee and promptly paid over to Lessee by Lessor.
12. Condemnation and Casualty
(a) General.
(i) Subject to the provisions of this Section 12
Lessee hereby irrevocably assigns to the Lessor any award or compensation or
insurance payment to which the Lessee may become entitled (i) if the Property or
any part thereof is damaged or destroyed by fire or other casualty (such an
occurrence being herein called a "Casualty") or (ii) if the use, occupancy or
title of the Property or any part thereof is taken or requisitioned or sold in,
or on account of any actual or threatened condemnation or eminent domain
proceedings, or other action by any Person having the power of eminent domain
(such an occurrence being herein called a "Condemnation").
(ii) The Lessee shall promptly notify the Lessor in
writing of any Casualty or Condemnation and shall appear in any proceeding or
action to defend, negotiate, prosecute or adjust any claim for any award or
compensation or insurance payment on account thereof. The Lessee shall take all
appropriate action in connection therewith, including the employment of counsel
reasonably satisfactory to the Lessor and Agent. The Lessor and Agent shall have
the right to appear and participate and to employ separate counsel in any such
proceeding or action, and the fees and expenses of such counsel shall be paid by
the Lessee if the Lessee shall have failed to employ counsel reasonably
satisfactory to the Lessor and Agent (or, upon notice from Lessor or Lessee of
their dissatisfaction with the counsel employed by Lessee, Lessee shall have
failed to discharge counsel previously employed and to retain new counsel that
Lessee and the Agent and Lessor may agree upon). If the Lessee shall elect not
to enter an appearance in any such proceeding or action or shall fail to
prosecute any such proceeding or action diligently, or if any Special Incipient
Default or Event of Default has occurred and is continuing hereunder, the Lessor
and/or Agent may assume the prosecution thereof and the Lessee shall pay all of
the reasonable fees and expenses of Lessor's and/or Agent's counsel. No
settlement of any such proceeding or action shall be made by the Lessee without
the written consent of the Lessor and the Agent, which consent shall not
unreasonably be withheld.
(iii) All awards and proceeds attributable to
Lessee's Equipment, Lessee's moving and other expenses, and other losses
incurred by Lessee and all proceeds of Lessee's business interruption insurance
shall be paid to Lessee, and Lessor shall not have any rights therein, so long
as the award or insurance proceeds payable in respect of the Parcel and/or the
Improvements themselves are not reduced as a result of any such payments to
Lessee. In no event shall Lessee make any claim in any Condemnation proceeding
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in respect of the loss or value of the leasehold estate in the Property created
hereby, and Lessee hereby assigns to Lessor any rights it may have to any award
based on the value of the leasehold estate; provided, however, that (i) the
foregoing shall not preclude Lessee from bringing a separate action for damage
to its leasehold estate if, and only if, the award to the Lessor is not reduced
as a result thereof, and further provided that (ii) if Lessee purchases the
Property (or applicable portion thereof) in connection with any such
Condemnation under any applicable provision of this Lease, Lessee shall be
entitled to any Net Proceeds arising therefrom and may prosecute or dispose of
any Condemnation action as it deems appropriate.
(iv) Except as otherwise set out below, any and all
amounts representing proceeds paid in connection with any such Condemnation or
Casualty (other than proceeds of rental loss insurance and proceeds attributable
to Lessee's personal property, Lessee's moving or other expenses, and business
interruption insurance), as the case may be (collectively, the "Proceeds"),
shall be paid over to the Proceeds Trustee (as defined below) to be held in
trust by such Proceeds Trustee and distributed pursuant to paragraph 12 or 15 of
this Lease, as appropriate, (all such Proceeds, less the reasonable expenses
incurred by the Lessor and the Lessee in collecting such amounts, but including
any reimbursement by the Lessee for reasonable costs and expenses in connection
therewith to which the Lessor and the Agent are entitled pursuant to this Lease,
are the "Net Proceeds"). Except as otherwise provided below, any and all
Proceeds received by the Lessee in connection with any such proceeding or action
shall be received and held in trust for the benefit of the Lessor, shall be
segregated from other funds of the Lessee and shall be forthwith paid over to
the Proceeds Trustee. The Lessee and Lessor agree that this Lease shall control
the rights of the Lessor and the Lessee in any such Proceeds, and any present or
future Law to the contrary is hereby waived. Any and all reasonable charges,
fees and expenses of the Proceeds Trustee shall be paid from the Net Proceeds.
"Proceeds Trustee" shall mean Agent, if Agent elects to perform such functions
or, if Agent elects not to perform such functions, such title company or other
independent bank or trust company as may be designated by the Lessor with the
approval of Agent.
(v) Notwithstanding the foregoing, however, if the
total amount of Proceeds attributable to a Casualty or Condemnation is less than
or equal to $350,000.00 with respect to any one Parcel, and no Special Incipient
Default and no Event of Default of any kind then exists, then Lessee may settle
the claim in question on behalf of Lessee and any and all Proceeds received by
Lessee in connection with any such proceeding or action may be retained by
Lessee (rather than being paid over to the Proceeds Trustee), and this Lease
shall continue in full force and effect, and the Lessee shall, at its expense,
promptly commence and diligently pursue to completion the rebuilding,
replacement or repair of any damage to such portion of the Property caused by
such event in conformity with the requirements of Sections 9 or 10, as
applicable, in order to restore such portion of the Property (in the case of a
Condemnation, as nearly as practicable) to the condition and fair market value
thereof immediately prior to such event.
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(b) Condemnation with Termination. (i) If a Condemnation shall
in the good faith opinion of an authorized officer of Lessee affect the
Improvements on a given Parcel in such manner as to render it unsuitable for
restoration or for continued use and occupancy by the Lessee, then the Lessee
may deliver, not later than sixty (60) days after such occurrence, or (ii) if a
Condemnation shall affect the entirety of a Parcel and the Improvements thereon,
then the Lessee shall be deemed to have delivered as of such occurrence, to the
Lessor a written notice (herein called a "Termination Notice") containing (A)
notice of the Lessee's intention to terminate this Lease with respect to the
affected Parcel and the Improvements thereon, and (B) a certificate of an
officer of the Lessee describing the Condemnation giving rise to such
termination and certifying as to clause (i) or (ii) above, as appropriate. In
such event this Lease shall remain in full force and effect as to the Parcels
(and the Improvements thereon) not affected by the Condemnation in question, and
as to the affected Parcel and Improvements the Lessee shall have the same
options available to it that would be available to Lessee at the Expiration Date
with respect to the entire Property. Accordingly, Lessee may either purchase the
remainder of the Parcel and Improvements in question, if any, plus the Net
Proceeds attributable thereto for the Offer Purchase Price as provided for in
Section 15 below, or terminate this Lease as to the Parcel and Improvements in
question upon payment of a Contingent Rent Payment in respect of the Parcel and
Improvements in question in an amount equal to 84% of the amount that would be
the applicable Offer Purchase Price for the Parcel and Improvements in question
pursuant to Section 15. (If Lessee pays the Contingent Rent Payment in respect
of a portion of the Property pursuant to this provision, such amount shall be
credited, without interest, against the Contingent Rent Payment payable
hereunder at the Expiration Date.) If Lessee fails to elect which of the
foregoing options it requests at the time of delivery of the Termination Notice,
it shall be deemed to have elected to purchase the affected portion of the
Property for the applicable Offer Purchase Price.
(c) Condemnation Without Termination; Casualty.
(i) If, after a Condemnation, the Lessee has not
given a Termination Notice in accordance with subsection 12(b) with respect to
the affected Parcel and the Improvements thereon, or in any event after a
Casualty (unless, in the case of Casualty, Lessee elects to proceed pursuant to
Section 13 below, if applicable), then this Lease shall continue in full force
and effect with respect to the affected Parcel and the remainder of the
Property, and the Lessee shall, at its expense, promptly commence and diligently
pursue to completion the rebuilding, replacement or repair of any damage to such
portion of the Property caused by such event in conformity with the requirements
of Section 9 or 10, as applicable, in order to restore such portion of the
Property (in the case of a Condemnation, as nearly as practicable) to the
condition and fair market value thereof immediately prior to such event.
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(ii) In circumstances where the Net Proceeds are to
be administered by the Proceeds Trustee, the Lessee shall be entitled to receive
payment from the Net Proceeds from time to time as such work of rebuilding,
replacement or repair progresses, but only after presentation of certificates of
a licensed architect chosen by the Lessee and subject to the approval of the
Agent (which approval shall not be unreasonably withheld or delayed), delivered
by the Lessee to the Proceeds Trustee (with a copy to the Agent) from time to
time as such work of rebuilding, replacement or repair progresses. Each such
architect's certificate shall describe the work for which the Lessee is
requesting permission to pay or requesting payment and the cost incurred by the
Lessee in connection therewith and shall state that such work has been properly
completed and that the Lessee has not theretofore received payment for such
work, and shall be accompanied by an officer's certificate of the Lessee
certifying that no Special Incipient Default or Event of Default has occurred
and is continuing and that the amounts held by the Proceeds Trustee are adequate
to complete such rebuilding, replacement or repair. The Proceeds Trustee shall
deliver, or cause to be delivered, payment within ten (10) Business Days after
its receipt of the certificates required above. Upon receipt by the Proceeds
Trustee (with a copy to the Agent) of an officer's certificate from the Lessee
to the effect that final payment has been made for any such work and stating
that the rebuilding, replacement or repair has been completed, the remaining
amount of such Net Proceeds shall be paid to the Lessee. The Lessee shall be
responsible for the cost of any such repair, rebuilding or restoration in excess
of such Net Proceeds, for which cost the Lessee shall make adequate provision
acceptable to the Lessor and Agent.
(d) Temporary Condemnation or Lease Termination.
Notwithstanding any other provision to the contrary contained in this Section
12, in the event of any temporary Condemnation, this Lease shall remain in full
force and effect, and provided no Special Incipient Default or Event of Default
has occurred and is continuing, the Lessee shall be entitled to receive the Net
Proceeds allocable to such temporary Condemnation, except that if this Lease
shall expire or terminate during such temporary Condemnation, then Lessee shall
only be entitled to the Net Proceeds allocable to the period after the
termination or expiration of this Lease if it has purchased the Property
pursuant to Section 14 hereof.
(e) Notwithstanding the foregoing provisions, in the event a
material Condemnation or Casualty with respect to a Parcel occurs during the
last twelve (12) months of the Term, Lessee may issue a Partial Termination
Notice with respect to the Parcel in question in the manner contemplated in
Section 13(a) hereof, but without satisfying the requirements set out in Section
13(a)(i)(3) regarding the Parcel in question. No Early Termination Fee shall be
payable in the event Lessee exercises such option.
13. Early Termination Rights
(a) Partial Termination.
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(i) Subject to the provisions of subsections (a)(ii)
and (a)(iii) below, the Lessee may at any time deliver to the Lessor a written
notice signed by an authorized officer of the Lessee (herein called a "Partial
Termination Notice") containing (1) notice of the Lessee's intention to
terminate this Lease with respect to a specific Parcel and the Improvements
located thereon as of a Payment Date no earlier than thirty (30) days after the
delivery of such notice, (2) an Offer to Purchase with respect to such Parcel
and the Improvements located thereon pursuant to Section 14, and (3) a
certification of an authorized officer of Lessee to the effect that either (A)
the Parcel in question has become obsolete and is no longer needed by Lessee for
its operation; or (B) if an Event of Default, or any Incipient Default, exists
which in either case arises out of an Environmental Event relating solely to the
Parcel in question and Lessee elects to cure the Event of Default in question,
or to cure the Incipient Default before it becomes an Event of Default, by
purchasing the affected Parcel in lieu of taking the curative action required by
Lessor or Agent.
(ii) Specific Limitation. In no event shall Lessee
have the right to give a Partial Termination Notice with respect to any
Parcel(s) pursuant to subsection (a)(i)(A) above prior to the first anniversary
of the date the Parcel in question was added to the Property or while any Event
of Default shall have occurred and be continuing. The foregoing one (1) year
limitation will not apply to the exercise of Lessee's purchase option pursuant
to subsection (a)(i)(B) above. It is acknowledged that the option of the Lessee
to give a Partial Termination Notice pursuant to subsection (a)(i)(B) above is a
right granted to Lessee that is separate from the obligation of Lessee to
purchase a Parcel at the option of Lessor if the Environmental Event in question
ripens into an Event of Default, as provided in Section 14(a)(v).
(iii) In addition to any other amounts included
within the Offer Purchase Price, Lessee shall pay to Lessor an "Early
Termination Fee" (herein so-called) in an amount equal to one percent (1%) of
the Acquisition Price of the Parcel(s) in question, at the time the Lease is
terminated as to any Parcel(s) pursuant to this Section 13(a).
(b) Material Changes in Treatment of Transaction.
(i) The Lessee at any time may deliver to the Lessor
a written notice signed by an authorized officer of the Lessee (herein called an
"Early Termination Notice") upon the occurrence of any of the following:
(A) A ruling by the Internal Revenue Service
which results in the loss of MACRS (as defined in the Internal Revenue
Code of 1986) deductions relating to the Property by Lessee for federal
income tax purposes; or
(B) A change in GAAP or the interpretive
rulings applicable thereto which requires recharacterization of this
Lease as a "capital lease" rather than an "operating lease";
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(C) Issuance of any rulings or requirements
by the Securities and Exchange Commission ("SEC") that would require
that this Lease be accounted for as a "capital lease" rather than as an
"operating lease" in any financial statements of Lessee used in any
public SEC filings.
The Early Termination Notice shall contain notice of the Lessee's intention to
terminate this Lease as of a Payment Date no earlier than thirty (30) days after
the delivery of such notice, and (ii) an Offer to Purchase all of the Property
pursuant to paragraph 14.
(ii) No Early Termination Fee shall be due in the
event of a purchase of the Property pursuant to this Section 13(b).
14. Offer to Purchase
(a) Lessee shall have the right, or obligation, as applicable,
to deliver an "Offer to Purchase" (herein so-called) for the Property or an
applicable portion thereof from Lessor under the following circumstances:
(i) On the date that is six (6) months prior to the
Expiration Date (as extended, if applicable), Lessee shall be deemed to
have delivered to Lessor an Offer to Purchase the entire Property
unless, on or before such date, Lessee has given notice to Lessor of
Lessee's election to pay the Contingent Rent Payment pursuant to
Section 27 hereof. Any such purchase of the entire Property may be
closed at any time during the last six (6) months of the Term and no
Early Termination Fee shall be applicable thereto. The exercise by
Lessee of its rights on one or more occasions under Sections 12(b) or
13(a)(i) or 13(b) shall not limit or otherwise affect Lessee's right to
elect either to deliver an Offer to Purchase or to pay the Contingent
Rent Payment hereunder with respect to the portions of the Property
that remain subject to this Lease at the time the provisions of Section
27 become applicable.
(ii) Simultaneously with the delivery of Partial
Termination Notice pursuant to Section 13(a)(i) above with respect to
any applicable portion of the Property, Lessee shall be obligated to
deliver an Offer to Purchase such portion of the Property and the
delivery of such Offer to Purchase shall be a condition precedent to
the effectiveness of such Partial Termination Notice.
(iii) Simultaneously with the delivery of any Early
Termination Notice pursuant to Section 13(b) above, Lessee shall be
obligated to deliver an Offer to Purchase the entire Property and the
delivery of such Offer to Purchase shall be a condition precedent to
the effectiveness of such Early Termination Notice.
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(iv) Simultaneously with the delivery of any
Termination Notice with respect to an applicable portion of the
Property pursuant to Section 12(b) hereof in connection with any
Condemnation, Lessee shall be obligated to deliver an Offer to Purchase
such portion of the Property and the delivery of such Offer to Purchase
shall be a condition precedent to the effectiveness of such Termination
Notice.
(v) Upon the occurrence of an Event of Default,
Lessee shall, at the option of Lessor or Agent, be deemed to have
delivered an Offer to Purchase covering the entire Property (unless the
Event of Default in question is one that arises solely out of facts or
conditions applicable to one or more particular Parcel(c) [as opposed
to the Property as a whole, or the condition of Lessee or Lessee
Parent] such that if the Parcel(s) in question were not part of the
Property the Event of Default in question would not exist, in which
case the Offer to Purchase shall be applicable only to the Parcel(s) as
to which such Event of Default relates) effective as of the date on
which such Event of Default is declared by Lessor or Agent; provided,
however, that in the case of any Event of Default as defined in
subsection 19(a)(xi) or 19(a)(xii), the Offer to Purchase shall be
deemed to have been given immediately upon the occurrence of the Event
of Default in question and without the necessity or requirement of any
notice or request from Lessor or Agent. An Early Termination Fee in an
amount equal to one percent (1%) of the applicable Acquisition Price
shall be due and payable with respect to any purchase of one or more
Parcel(s) pursuant to this subsection (v).
(vi) If a Construction Failure (as defined in Section
3 of the Construction Addendum) shall occur with respect to the
construction of New Improvements on any one or more Parcel(s), then
unless Lessee elects in writing within fifteen (15) days thereafter to
terminate the Lease with respect to the Parcel as to which the
Construction Failure has occurred pursuant to Section 3.1 of the
Construction Addendum, Lessee shall be deemed to have delivered an
Offer to Purchase the Parcel with respect to which such Construction
Failure has occurred upon the earlier of the Required Completion Date
(as defined in the Construction Addendum) or the date on which such
Construction Failure occurs for the New Improvements in question. No
Early Termination Fee shall be payable with respect to any such
purchase.
(b) Any Offer to Purchase delivered by the Lessee shall be
irrevocable, except as otherwise provided herein.
(c) The Lessor shall promptly accept any Offer to Purchase
delivered by Lessee in accordance with the foregoing provisions and the
procedure for the purchase of the Property or applicable portion thereof and the
purchase price therefor shall be governed by Section 15 hereof.
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15. Procedure Upon Purchase
(a) If the Lessee shall deliver (or is deemed to have
delivered) an Offer to Purchase under Section 14(a)(i), the closing of the
Lessee's purchase of the Property (the "Closing Date") shall be on the
Expiration Date (or such earlier date during the last six (6) months of the Term
as may be designated by Lessee). Otherwise, the Closing Date shall be: (1) in
the case of an Offer to Purchase covering all or a portion of the Property given
pursuant to subsection 14(a)(ii), (iii), or (iv), on the Payment Date specified
in the Partial Termination Notice, Early Termination Notice, or Termination
Notice, as applicable; (2) in the case of an Offer to Purchase (covering either
all of the Property or an applicable portion thereof) delivered pursuant to
subsection 14(a)(v) or (vi) on the first Payment Date that is at least thirty
(30) days after delivery (or deemed delivery) of the Offer to Purchase to Lessor
by Lessee. In any case the Closing Date may be on such other date as may be
mutually agreed upon by the Lessor and the Lessee. On the Closing Date, upon
receipt of the Offer Purchase Price, the Lessor shall convey, or cause to be
conveyed, the Property or applicable portion thereof (or, in the case of
Condemnation, the remaining portion thereof) to the Lessee or its designee by an
appropriate recordable limited or special warranty deed and other appropriate
conveyance documents containing no representation or warranty (expressed or
implied) except that the Property or applicable portion thereof is free and
clear of any conveyance, mortgage, lease, or Lien or other adverse interest of
any kind created or caused by the Lessor or any person claiming by, through or
under the Lessor but not otherwise (except as consented to by the Lessee).
(b) On the Closing Date, the Lessee shall pay, or cause to be
paid, to the Lessor the "Acquisition Price" for the Property or the portion(s)
thereof covered by the Offer to Purchase in question as defined in Exhibit "A",
together with all Net Rent, Additional Rent and other sums then due and payable
hereunder relating to the Property (including, in the case of a transfer of less
than all of the Property, all such sums attributable both to the portions of the
Property being transferred and the remaining portions of the Property) up to and
including such Closing Date, plus the Early Termination Fee (if applicable)
(such amounts, plus all amounts payable by Lessee pursuant to the following
sentence, are herein referred to as the "Offer Purchase Price"), and the Lessor
shall simultaneously (i) deliver to the Lessee or its designee the instruments
referred to in this Section 15 with respect to the Property or the applicable
portions thereof and any other instruments reasonably necessary to convey to
Lessee or its designee the Property or the applicable portions thereof and
assign any other property then required to be assigned pursuant hereto, and (ii)
convey, or cause to be conveyed, to the Lessee or its designee any Net Proceeds
and/or the right to receive the same attributable to the portions of the
Property being transferred that have not theretofore been disbursed. The
Transaction Mortgage granted by Lessor on the Property pursuant to the
Transaction Agreement shall be released from the Property (or applicable portion
thereof) purchased by Lessee, by the Agent, by appropriate recordable
instrument. The Lessee shall also pay, or cause to be paid, all charges incident
to such conveyance, including reasonable attorneys' fees of Lessor's counsel
28
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and/or Agent's counsel, and escrow fees, recording fees, any fees, costs or
expenses incurred by the Lessor or Agent in connection with the same, and all
applicable transfer taxes which may be imposed by reason of such conveyance and
the delivery of said instruments (collectively, the "Closing Costs"). Upon the
completion of any purchase of the Property pursuant to this Section 15, but not
prior thereto, this Lease shall terminate with respect to the Property or the
applicable portions thereof affected by such transaction except with respect to
obligations and liabilities of the Lessee (actual or contingent) (i) under
Section 8 hereof, and (ii) which have arisen with respect to the Property on or
prior to such date of purchase, and except as elsewhere provided herein.
(c) If less than all of the Property is purchased, this Lease
shall remain in full force and effect as to the remaining portions of the
Property, and the Net Rent shall be adjusted as provided for on Exhibit "A".
16. Throughout the Term of the Lease (including any extension thereof),
Lessee shall comply with the following "Insurance Requirements" (herein
so-called):
(a) The Lessee will purchase and maintain, or cause to be
purchased and maintained, insurance with respect to the Property of the
following types and in the following amounts, or if greater, in sufficient
amounts to prevent the Lessor, the Lessee, the Agent and/or the Instrument
Holders from becoming co-insurers of any loss:
(i) Property Insurance: Insurance against physical
damage to the Property caused by "all risks" perils (subject to certain
commercially customary exclusions such as earthquake damage), as well
as broad form boiler and machinery coverage.
(ii) Commercial General Liability Insurance:
Insurance (issued on an "occurrence" rather than "claims made" basis)
against claims for bodily injury (including death) and property damage
occurring on, in or about the Property or resulting from activities on
the Property, in the minimum combined single limit amount of
$50,000,000 in the aggregate and $25,000,000 for each occurrence for
bodily injury (or death) and/or property damage. Such coverage may be
provided either by a primary policy having such limits or by a primary
policy with lower limits and one or more secondary or "umbrella"
policies, so long as in the aggregate the required coverage is
provided.
(iii) Other Insurance: Such other insurance, in such
amounts and against such risks, as is available from time to time and
customarily carried by companies owning, operating or leasing property
or conducting businesses similar and/or similarly situated to the
Property and/or the Lessee.
Such insurance shall be written by companies that are nationally recognized
(including Lloyd's of London or other recognized international insurers) and
primary insurance shall be written by companies with a Best's rating of at least
B+/VI for property insurance and B+/X or better for other insurance, and in each
case legally qualified to issue such insurance, selected by the Lessee and shall
name Lessor (in both its individual capacity and in its capacity as Trustee
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under the Declaration of Trust, to the extent of its respective interests under
the Transaction Documents) and Agent (for the benefit of itself and the
Instrument Holders) as an additional insured and/or loss payee, as their
interests may appear. If the Property or any part thereof shall be damaged or
destroyed by fire or other insured peril, the Lessee shall promptly notify the
Lessor thereof and of the estimated cost of rebuilding, and of replacing or
repairing the same.
(b) The property insurance referred to in subsection 16(a)(i)
for the Property shall (i) at all times be in an amount at least equal to one
hundred percent (100%) of the replacement cost value (without depreciation), but
excluding the cost of footers, foundations, and site improvements not normally
insured, and (ii) include a lenders' loss payable endorsement in favor of the
Agent, as mortgagee under the Transaction Mortgage, and any loss or damage under
such property insurance policy other than proceeds representing compensation for
business interruption or damage to Lessee's personal property shall be paid to
the Proceeds Trustee (or, if received by any other party, shall be immediately
endorsed or paid over to the Proceeds Trustee) where required pursuant to
Section 12 of this Lease to be held and applied pursuant to the terms of this
Lease. Every policy required under Section 16(a) shall (i) expressly provide
that it will not be canceled or terminated due to a lapse for non-payment of
premium or materially changed except upon fifteen (15) days' written notice to
the Lessor, Agent and the Lessee; (ii) provide that the interests of the Lessor
and the Agent shall be insured regardless of any breach or violation by the
Lessee of any warranties, declarations or conditions contained in such
insurance; (iii) provide that such insurance shall not be invalidated as to the
Lessor, the Agent, or any Instrument Holder by any act, omission or negligence
of the Lessee or any other of the Lessor, the Agent or any Instrument Holder,
nor by any foreclosure or other proceedings or notices thereof relating to the
Property or any part thereof, nor by legal title to, or ownership of the
Property or any part thereof becoming vested in the Agent or its agents, nor by
occupancy or use of the Property or any part thereof for purposes more hazardous
than permitted by such policy; (iv) provide that all insurance claims pertaining
to the Property or any part thereof shall be adjusted by the insurers thereunder
with the Lessee but that the Lessor and Agent must consent to any such adjusted
claim (which consent shall not be unreasonably withheld) except in those
circumstances where Lessee is authorized to adjust the insurance claim in
question pursuant to Section 12 hereof; and (v) include a waiver of all rights
of subrogation against the Lessor, the Agent and/or the Instrument Holders and
any recourse against the Lessor, the Agent and/or the Instrument Holders for
payment of any premiums or assessments under any policy. The Lessee shall advise
the Lessor promptly of any policy cancellation or any change adversely affecting
the coverage provided thereby.
(c) The Lessee shall deliver to the Lessor and Agent the
certificates of insurance in form and substance reasonably acceptable to Lessor
and Agent evidencing the existence of all insurance which is required to be
maintained by the Lessee hereunder including descriptions of the previously
mentioned Insurance Requirements not normally found in a standard insurance
policy as well as descriptions of the exclusions from coverage under such
policies, such delivery to be made (i) on or before the Commencement Date, (ii)
within thirty (30) days of the issuance of any additional policies or amendments
or supplements to any of such insurance, and (iii) on or before the expiration
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date of any such insurance; provided, however, that Lessee may deliver the
necessary certificate for a renewal or replacement policy within five (5) days
after the expiration date of the policy being renewed or replaced so long as
Lessee provides Lessor and Agent with some reasonable evidence that the required
coverage is in fact in place on or before the expiration date of the expiring
policy. The Lessee shall not obtain or carry separate insurance concurrent in
form, or contributing in the event of loss, with that required by this Section
16 unless the Lessor, the Agent and/or the Instrument Holders, as applicable,
are named as additional insureds therein as their interests may appear, with
loss payable as provided in this Lease. The Lessee shall immediately notify the
Lessor and the Agent whenever any such separate insurance is obtained and shall
deliver to the Lessor and Agent the certificates of insurance evidencing the
same as is required hereunder. Any insurance required hereunder may be provided
under Lessee's blanket policies; provided that the coverage allocable to the
Property is not less than the coverage required by this Section 16 as separately
stated.
(d) The requirements of subsections (a) through (c) of this
Section 16 shall not be construed to negate or modify the Lessee's obligations
under Section 8 hereof.
(e) From time to time Lessee may elect to satisfy all or
certain of the insurance requirements of this Section 16 through use of a
self-insurance program, subject to Lessor's and Agent's prior written reasonable
approval of the self-insurance program in question and after delivery to Lessor
and Agent of such assurances and undertakings as Lessor and Agent may reasonably
require to evidence that any loss or damage that would have been covered by
third party insurance policies hereunder in the absence of such a self-insurance
program will be paid or covered by Lessee pursuant to such self-insurance
program. In this regard Lessee's current self-insurance program as described on
Annex I attached hereto and made a part hereof for all purposes is approved.
Further, so long as no Event of Default exists hereunder Lessee may from time to
time increase the self-insurance retention limits/deductibles for general
liability, automobile liability, and/or property damage losses, respectively, in
its self-insurance program from the amounts set out on such Annex I to amounts
not in excess of $1,000,000.00 without the consent of Lessor or Agent. Without
limitation on any indemnification or other obligations of Lessee hereunder
Lessee hereby expressly acknowledges and agrees that Lessee shall be fully
responsible and liable to Lessor, Agent, and/or the Instrument Holders, as
applicable, from time to time for any loss or damage that would have been
covered by third party insurance policies hereunder in the absence of such
self-insurance program and any such loss or damage will be paid or covered by
Lessee on demand.
17. Assignment; Subletting
(a) Sublease Requirements. The Lessee may sublet the Property
or any part thereof if, but only if, (i) at the time of execution of any such
sublease, no Event of Default shall have occurred and be continuing; (ii) any
such sublease shall by its terms be expressly made subject and subordinate to
the terms of this Lease and the Transaction Documents; and (iii) the Lessee
shall provide the Lessor, within ten (10) days prior to the effective date of
such sublease, with a conformed copy of the instrument creating such sublease.
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Any sublease executed by Lessee and not in strict compliance with the foregoing
shall be null and void and of no force or effect.
(b) Assignment or Hypothecation. The Lessee shall not assign,
convey, or otherwise transfer, or mortgage, pledge or otherwise hypothecate or
encumber its interest in and to this Lease or in and to any sublease or the
rentals payable thereunder without the prior written consent of the Agent, which
consent may be conditioned or denied in Agent's sole discretion; Any such
assignment, conveyance, transfer, mortgage, pledge, hypothecation, or
encumbrance made without Agent's consent shall be null and void and of no force
or effect. The foregoing shall not prohibit Lessee from mortgaging or granting a
security interest in Lessee's Equipment. In addition, any Lessee may assign its
lease position with respect to a particular Parcel to any other Lessee without
the consent of the Agent, but in such instance the Lessees involved shall notify
Agent and Lessor of the assignment, which shall be effective upon execution of a
supplement to this Lease in form reasonably satisfactory to Agent confirming the
change of the Lessee applicable to the Parcel in question.
(c) Use By Affiliates. Notwithstanding anything herein to the
contrary, Lessee may from time to time during the Term permit Affiliates of the
Lessee to occupy portions of the Property and Lessor acknowledges and agrees to
the same.
(d) Lessee Remains Liable. No sublease pursuant to this
Section 17 or any occupancy of the Property by any Affiliate of the Lessee, nor
any assignment or hypothecation that may be approved by Agent (but without
implying any obligation whatsoever on Agent to approve any proposed assignment
or hypothecation), shall modify or limit any right or power of the Lessor
hereunder or affect or reduce any obligation of the Lessee hereunder, and all
such obligations shall continue in full force and effect as obligations of a
principal and not of a guarantor or surety, as though no subletting, assignment,
or hypothecation had been made or occupancy permitted.
18. Permitted Contests
(a) The Lessee shall not be required, nor shall the Lessor
have the right, to pay, discharge or remove any Imposition, to comply or cause
the Property or any part thereof to comply with any applicable Legal
Requirement, to pay any materialman's, laborer's or undischarged or unremoved
Lien, to perform any disputed obligations under any Facility Agreements, or to
take action to cure any alleged encroachment affecting a Parcel as long as no
Special Incipient Default, and no Event of Default of any kind, exists hereunder
and so long as the Lessee shall at its sole expense contest, or cause to be
contested, in good faith the existence, amount or validity thereof by
appropriate proceedings which shall (i) in the case of an unpaid Imposition or
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undischarged or unremoved Lien, prevent the collection thereof from the Lessor,
the Agent, the Instrument Holders and/or against the Property, (ii) in all cases
prevent the sale, forfeiture, loss of the Property or any part thereof, and
(iii) in all cases not subject the Lessor, the Agent, and/or the Instrument
Holders to the risk of any civil or criminal liability for failure to comply
therewith. The Lessee shall give such security as may be reasonably demanded by
the Lessor or Agent to insure ultimate payment of such Imposition or the
discharge or removal of materialman's, laborer's or mechanic's Lien or to insure
compliance with such Legal Requirement or Facility Agreement and to prevent any
sale or forfeiture of the Property or any part thereof, or any interference with
or deductions from any Net Rent, Additional Rent or any other sum required to be
paid by the Lessee hereunder by reason of such non-payment, non-discharge,
non-removal or non-compliance; provided that no such security shall be required
so long as Lease Guarantor is in compliance with the financial covenants set out
in the Lease Guarantee.
(b) The Lessor shall cooperate with the Lessee in any contest
and shall allow the Lessee to conduct such contest (in the name of the Lessor,
if necessary) at the Lessee's sole cost and expense. The Lessee shall notify the
Lessor of each such proceeding within ten (10) days after the commencement
thereof, which notice shall describe such proceeding in reasonable detail.
(c) The Lessee shall, promptly after the final determination
(including appeals) of any contest brought by it pursuant to this Section 18,
pay and discharge all amounts which shall be determined to be payable therein
and shall be entitled to receive and retain for its own account all amounts
refunded and/or rebated as a result of any such contest and if the Lessor
receives any amount as a result of such contest to which it is not otherwise
entitled pursuant to this Lease, it shall promptly return such amount to the
Lessee.
19. Default Provisions
(a) Any of the following occurrences or acts shall constitute
an event of default (each, an "Event of Default") under this Lease:
(i) if the Lessee shall fail to pay any Net Rent,
Offer Purchase Price or Contingent Rent Payment on the date on which
payment is due; provided, however, that with respect to Net Rent,
Lessee shall be entitled to notice of such non-payment and a five (5)
Business Day cure period with respect to the defaulted amount before
such non-payment of Net Rent becomes an Event of Default on up to two
(2) occasions during any period of eighteen (18) consecutive months
during the Term (after such two (2) notices of non-payment of Net Rent
during any period of eighteen (18) consecutive months Lessee will not
be entitled to further notice of non-payment or grace or cure periods
with respect to Net Rent payments during the remainder of the eighteen
(18) month period in question (i.e. the period beginning with the first
of such two occasions) and an Event of Default shall exist if future
Net Rent payments during such period of eighteen (18) consecutive
months are not made when due).
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(ii) subject to the terms of Section 18 relating to
permitted contests, if the Lessee shall fail to pay any Imposition
(including, without limitation, any interest or penalties that may then
be applicable thereto) within five (5) Business Days after written
demand by Lessor or Agent.
(iii) if the Lessee shall fail to pay any Additional
Rent or other monetary payment due hereunder (other than the payment
referred to in subsections [i] or [ii] above) or due under the
Transaction Agreement or any Transaction Document on the date such
payment is due and such failure is not cured within five (5) Business
Days after written notice of such failure is given by either Lessor or
Agent to Lessee;
(iv) if the Lessee shall fail to comply with any
Insurance Requirement (either by actual insurance or through the use of
a self-insurance program satisfying the requirements of Section 16(e)
hereof) and such failure is not cured within thirty (30) days after
written notice of such failure is given to Lessee (which cure period
shall be ten (10) days instead of thirty (30) days if the
non-compliance in question is an actual failure to have any required
insurance in force); provided, that the foregoing cure period shall not
be deemed to limit Lessor's or Agent's right to take action as deemed
necessary to avoid lapse or termination of coverage even during such
cure period nor Lessee's obligations to reimburse Lessor for any funds
it may expend in connection therewith;
(v) if the Lessee shall voluntarily grant or create
any Lien (other than Permitted Encumbrances) upon the Property or any
part thereof or interest therein or upon any Net Rent, Additional Rent
or other sum payable hereunder;
(vi) if Lessee shall fail to comply with any of the
affirmative or negative covenants set out in Section 32 hereof;
(vii) if any representation or warranty made by
Lessee under this Lease, any supplement hereto, the Transaction
Agreement, or any other Transaction Document proves to have been false
or materially misleading at the time made and the misrepresentation, in
the reasonable judgment of Lessor or Agent, as applicable, has a
material adverse effect upon Lessor or the Instrument Holders;
(viii) if the Lessee shall fail to observe or perform
any other provision hereof (except as provided in Section 18 hereof),
or fail to observe or perform Lessee's obligations under the
Transaction Agreement or any Transaction Document and, in either case,
Lessee does not cure such failure within thirty (30) days after receipt
of written notice to the Lessee of such failure;
(ix) if an Event of Default has occurred under the
Environmental Indemnity Agreement, or an Event of Default by Lessee has
occurred under the Transaction Agreement or any of the other
Transaction Documents;
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(x) Upon the occurrence of a payment default by
Lessee with respect to any other indebtedness in an amount in excess of
$5 million owed by Lessee to any person or entity as and when such
payment is due, which default continues beyond any grace or cure
periods applicable thereto under the terms of the instruments
evidencing such indebtedness; or
(xi) if a custodian, receiver, liquidator, or trustee
of Lessee, or of any of the property of Lessee, is appointed or takes
possession, and such appointment or possession remains in effect for
more than sixty (60) days; or Lessee generally fails to pay its debts
as they become due or admits in writing its inability to pay its debts
as they mature; or Lessee is adjudicated bankrupt or insolvent; or an
order for relief is entered under the Federal Bankruptcy Code against
Lessee; or any of the property of Lessee is sequestered by court order
and the order remains in effect for more than sixty (60) days; or a
petition is filed against Lessee under the bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or subsequently in
effect, and is not stayed or dismissed within sixty (60) days after
filing;
(xii) if Lessee files a petition in voluntary
bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
subsequently in effect; or consents to the filing of any petition
against it under any such law; or consents to the appointment of or
taking possession by a custodian, receiver, trustee or liquidator of
Lessee or of all or any part of the property of Lessee;
(xiii) if the Property or any material portion
thereof shall be left vacant or unattended and without proper
maintenance for a period of thirty (30) days after notice from Lessor
requesting maintenance or other appropriate action. Nothing in the
foregoing provision shall be deemed to prohibit Lessee from ceasing
retail operations at any Parcel so long as the Improvements as to which
retail operations have ceased continue to be properly secured,
maintained, and insured as required by the terms of this Lease; or
(xiv) if an Event of Default by the Lease Guarantor
has occurred under the Lease Guarantee.
To the extent any provision of this Lease requires payment and/or performance of
any matter after written request or demand by Lessor, and Lessor gives such
written request or demand for the action in question to Lessee, such written
request or demand to Lessee specifically requesting or demanding payment or
performance of the matter in question, and specifying that if payment or
performance is not made an Event of Default may be declared by Lessor or Agent,
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shall constitute the notice required to be given by Lessor under this Section
19(a) for purposes of beginning any applicable grace or cure period, and if the
action requested or demanded is not taken by Lessee within the applicable grace
or cure period in question, an Event of Default shall arise hereunder without
the necessity of any further notice or demand by Lessor or Agent.
It is expressly agreed that in all circumstances where Lessee is
entitled to receive notice of non-performance from Lessor pursuant to this
Section 19(a) the notice in question may be given on behalf of Lessor by Agent,
and Lessor hereby appoints Agent as its agent for purposes of giving such
notices to Lessee.
If at any time there is more than one entity that is a Lessee under the
terms of this Lease, then (A) any Event of Default by any Lessee (including, but
without limitation, an Event of Default pursuant to subsections 19(a)(xi) and/or
(xii) as to such Lessee, shall constitute an Event of Default for purposes of
all parties constituting "Lessee," and (B) where Lessor or Agent is required to
give notice of any default, non-payment, or non-performance hereunder, notice
shall be given to the Lessee Parent which shall be effective as to all Lessees
regardless of which Lessee actually uses or occupies the portions of the
Property in question.
If an Event of Default occurs (including the expiration of applicable
grace or cure periods), then the subsequent performance of the defaulted
obligation shall not be deemed to "cure" the Event of Default unless Lessor
(with the consent of Agent) agrees to accept such cure in writing, and absent
such agreement the Event of Default in question shall be deemed to "continue"
for all purposes of this Lease. However, the purchase by Lessee of an affected
portion of the Property pursuant to subsection 13(a)(i), 14(a)(v) or 14(a)(vi)
where no Event of Default exists with respect to the remaining portions of the
Property shall be deemed to "cure" the Event of Default in question, the Lease
shall remain in effect as to the remainder of the Property, and the Lessor and
Lessee shall be automatically restored to their former rights and positions
hereunder.
(b) The Lessor may take all steps to protect and enforce the
rights of the Lessor or obligations of the Lessee hereunder, whether by action,
suit or proceeding at law or in equity (for the specific performance of any
covenant, condition or agreement contained in this Lease, or in aid of the
execution of any power herein granted, or for the enforcement of any other
appropriate legal or equitable remedy) or otherwise as the Lessor shall deem
necessary or advisable.
(c) If an Event of Default shall have occurred and be
continuing, then:
(i) By written notice by the Lessor to the Lessee,
the Lessor may terminate this Lease; provided, that no such termination shall be
effective unless approval of such termination is given in writing by Agent to
both Lessor and Lessee. This Lease and the estate hereby granted shall expire
and terminate on the date specified in such notice (or, if later, the date on
which approval of such notice is given by Agent) as fully and completely and
with the same effect as if such date were the Expiration Date herein fixed for
the expiration of the Term and all rights of the Lessee hereunder shall expire
and terminate, but the Lessee shall remain liable as hereinafter provided.
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(ii) Should the Lessor elect not to terminate this
Lease after the occurrence of an Event of Default, this Lease shall continue in
effect and Lessor may enforce all Lessor's rights and remedies under this Lease
including the right to recover the rent as it becomes due under this Lease. For
the purposes hereof, the following do not constitute a termination of this
Lease:
(A) Acts of maintenance or preservation of
the Property or any part thereof or efforts to relet the Property or
any part thereof, including, without limitation, termination of any
sublease of the Property and removal of such subtenant from the
Property; and/or
(B) The appointment of a receiver upon
initiative of the Lessor to protect the Lessor's interest under this
Lease.
(d) If an Event of Default shall have occurred and be
continuing, the Lessor shall have (i) the right, whether or not this Lease shall
have been terminated pursuant to subsection 19(c) hereof, to re-enter and
repossess the Property or any part thereof, as the Lessor may elect, by summary
proceedings, ejectment, any other legal action or in any other lawful manner the
Lessor determines to be necessary or desirable and (ii) the right to remove all
persons and property therefrom. The Lessor shall be under no liability by reason
of any such re-entry, repossession or removal. No such re-entry or repossession
of the Property or any part thereof shall be construed as an election by the
Lessor to terminate this Lease unless a notice of such termination is given to
the Lessee pursuant to subsection 19(c) hereof, or unless such termination is
decreed by a court or other governmental tribunal of competent jurisdiction.
Should the Lessor elect to re-enter the Property as herein provided or should
the Lessor take possession pursuant to legal proceedings or pursuant to any
notice provided for by Law or upon termination of this Lease pursuant to
subsection 19(c) hereof or otherwise as permitted by Law, the Lessee shall
peaceably quit and surrender the Property or any part thereof to the Lessor. In
any such event, neither the Lessee nor any person claiming through or under the
Lessee, by virtue of any Law, shall be entitled to possession or to remain in
possession of the Property, but shall forthwith quit and surrender the Property
to the Lessor.
(e) At any time or from time to time after the re-entry or
repossession of the Property or any part thereof pursuant to subsection 19(d)
hereof, whether or not this Lease shall have been terminated pursuant to
subsection 19(c) hereof, the Lessor may (but, except as otherwise required by
applicable Law, shall be under no obligation to) relet the Property or any part
thereof, for the account of the Lessee, without notice to the Lessee, for such
term or terms and on such conditions and for such uses as the Lessor, in its
discretion, may determine. The Lessor may collect and receive any rents payable
by reason of such reletting. The Lessor shall not be liable for any failure to
relet the Property or any part thereof or for any failure to collect any rent
due upon any such reletting.
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(f) No termination of this Lease pursuant to subsection 19(c)
hereof, or by operation of Law, and no re-entry or repossession of the Property
or any part thereof, pursuant to subsection 19(d) hereof, and no reletting of
the Property or any part thereof pursuant to subsection 19(e) hereof, shall
relieve the Lessee of its liabilities and obligations hereunder, all of which
shall survive such termination, re-entry, repossession or reletting.
(g) Upon the occurrence of an Event of Default, the Lessor,
without waiving any Event of Default or releasing Lessee from any obligation,
may (but shall be under no obligation to) make any required payment or perform
any required act for the account and at the expense of the Lessee, and may enter
upon the Property for such purpose and take all such action thereon as, in the
Lessor's sole discretion, may be necessary or appropriate therefor. No such
entry shall be deemed an eviction of the Lessee or a termination of this Lease.
All sums so paid by the Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses so incurred, together with
interest thereon to the extent permitted by Law) shall be paid by the Lessee to
the Lessor on demand as Additional Rent.
(h) In the event of any termination of this Lease or re-entry
or repossession of the Property or any part thereof by reason of the occurrence
of any Event of Default, the Lessee shall pay to the Lessor all Net Rent and
Additional Rent and other sums required to be paid to and including the date of
such termination, re-entry or repossession; and thereafter, until the end of the
Term, whether or not the Property or any part thereof shall have been relet, the
Lessee shall be liable to the Lessor for, and shall pay to the Lessor, on the
days on which such amounts would be payable under this Lease in the absence of
such termination, re-entry or repossession, as agreed current damages and not as
a penalty: all Net Rent, all Additional Rent and other sums which would be
payable under this Lease by the Lessee, in the absence of such termination,
re-entry or repossession, and all costs (including reasonable attorneys' fees
and expenses) incurred by the Lessor hereunder (payable on demand). At such time
after the termination or expiration of this Lease as the Lessee shall have paid
all amounts required to be paid by it under this Lease and the Lessor shall have
discharged any and all obligations to the Agent, then the Lessor shall pay to
the Lessee, within five (5) Business Days after its receipt thereof, the net
proceeds, if any, of any reletting effected for the account of the Lessee
pursuant to subsection 19(e), after deducting from such proceeds all the
Lessor's reasonable expenses in connection with such reletting (including, but
not limited to, all repossession costs, brokerage commissions, attorneys' fees
and expenses, employees' expenses, alteration costs and expenses of preparation
for such reletting), and the amounts to which Lessee may be entitled hereunder
shall be held by Lessor in trust for Lessee pending any such payment to Lessee.
(i) Lessor may exercise its rights under this Section 19
either directly or indirectly or through any agent (including, without
limitation, the Agent under the Transaction Agreement) as Lessor may from time
to time appoint to act on Lessor's behalf.
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(j) It is acknowledged that if Lessee closes the purchase of
the Property pursuant to an Offer to Purchase properly given (or deemed given)
by Lessee hereunder and pays the Offer Purchase Price to Lessor therefor, this
Lease shall terminate as of the closing of such purchase and Lessor will have no
further remedial rights with respect to any then existing Event of Default, but
such purchase shall not extinguish any rights of indemnification or other such
rights of Lessor, Agent, or the Instrument Holders that, by the terms or
implications hereof, are intended to survive termination of this Lease.
20. Additional Rights
(a) No right or remedy hereunder shall be exclusive of any
other right or remedy, but shall be cumulative and in addition to any other
right or remedy hereunder or now or hereafter existing by law or in equity and
the exercise by the Lessor of any one or more of such rights, powers or remedies
shall not preclude the simultaneous exercise of any or all of such other rights,
powers or remedies. Failure to insist upon the strict performance of any
provision hereof or to exercise any option, right, power or remedy contained
herein shall not constitute a waiver or relinquishment thereof for the future.
Receipt by the Lessor of any Net Rent, Additional Rent or other sum payable
hereunder with knowledge of the breach by Lessee of any provision hereof shall
not constitute waiver of such breach, and no waiver by the Lessor of any
provision hereof shall be deemed to have been made unless made in writing. The
Lessor shall be entitled to injunctive relief in case of the violation or
attempted or threatened violation of any of the provisions hereof, a decree
compelling performance of any of the provisions hereof or any other remedy
allowed to the Lessor by law or in equity.
(b) The Lessee hereby waives and surrenders for itself and all
those claiming under it, including creditors of all kinds, any right and
privilege which they may have to redeem the Property or to have a continuance of
this Lease after termination of the Lessee's right of occupancy by Law or by any
legal process or writ, or under the terms of this Lease, or after the
termination of the term of this Lease as herein provided. Lessee also waives, to
the maximum extent permitted by law, any requirement that the Lessor re-let the
Property or otherwise mitigate or attempt to mitigate damages arising out of any
default by Lessee.
(c) If an Event of Default exists hereunder, the Lessee shall
pay to the Lessor on demand, all reasonable fees and expenses incurred by the
Lessor in enforcing its rights under this Lease, including reasonable attorneys'
fees and expenses, and expressly including any obligations or liabilities that
Lessor may incur to Agent or the Instrument Holders in respect of costs incurred
by Agent or the Instrument Holders as a result of such Event of Default.
(d) (i) Lessor and Lessee intend that this Lease be treated as
an operating lease. If, notwithstanding the intention of the parties, a court of
competent jurisdiction determines in a final judgment or order that the
transaction represented by this Lease will be treated as a financing transaction
under state law, then in such event it is the intention of the parties hereto
(1) that this Lease be treated as a mortgage and security agreement or other
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similar instrument (the "Tenant Mortgage") from Lessee, as mortgagor, to Lessor,
as mortgagee, encumbering the Property, (2) that upon an Event of Default Lessor
shall have, as a result of such determination, all of the rights, powers and
remedies of a mortgagee available under applicable Law to take possession of and
sell (whether by foreclosure or otherwise) the Property, (3) that the effective
date of the Tenant Mortgage shall be the effective date of this Lease, (4) that
the recording of an instrument referencing this provision shall be deemed to be
the recording of the Tenant Mortgage, and (5) to conform strictly to any
applicable usury Laws (in such regard, if the Tenant Mortgage would otherwise be
usurious under applicable Law, then, notwithstanding anything herein to the
contrary, it is agreed as follows: (A) the aggregate of all consideration that
constitutes interest under applicable Law that is contracted for, taken,
reserved, charged or received shall under no circumstances exceed the maximum
amount allowed by such applicable Law, (B) in the event of acceleration or any
required or permitted prepayment, then such consideration that constitutes
interest under applicable Law may never include more than the maximum amount
allowed by such applicable Law, and (C) excess interest, if any, provided for
herein shall be canceled automatically and if theretofore paid, shall be
credited to or refunded to Lessee. It is further agreed that sums paid or agreed
to be paid for the use, forbearance or detention of money hereunder shall, to
the extent permitted by applicable Law, be amortized, prorated, allocated and
spread throughout the full Term until payment in full so that the rate or amount
of interest does not exceed the applicable usury ceiling, if any). Lessee hereby
grants, bargains, sells, conveys, mortgages, and hypothecates all of Lessee's
right, title, and interest in the Property to Lessor to the extent necessary to
effect the foregoing provisions, and appropriate words of conveyance shall be
included in the recorded memorandum of this Lease as necessary to give effect to
such provisions under state law.
(ii) If this Lease is treated as a Mortgage then for
purposes of clause (i) above, the term "applicable Law" shall mean the Law of
the State of Pennsylvania (or the Law of any other jurisdiction whose Laws may
be mandatorily applicable notwithstanding other provisions of this Lease, or Law
of the United States of America applicable hereto which would permit the parties
to contract for, charge, take, reserve or receive a greater amount of interest
than under Pennsylvania (or such other jurisdiction's) Law.
(e) At all times during the Term of this Lease, and without
regard to the characterization of this Lease for state law or for financial
accounting purposes, the Lessor shall claim no depreciation deductions with
respect to the Property for federal income tax purposes. Further, to the extent
Lessor is required to file a tax return as a legal entity Lessor will treat all
Net Rent received as interest income for federal income tax purposes.
21. Any notice required to be delivered hereunder shall be deemed
delivered, whether actually received or not, one (1) Business Day after deposit
with a nationally recognized courier service for overnight delivery addressed to
the parties hereto or Agent, as applicable, at the respective addresses
specified below, or at such other address as they or the Agent may have
subsequently specified by written notice. The addresses for notices to Lessor,
Lessee, and Agent are as follows:
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If to Lessor: State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, MA 02110
Attention: Donald E. Smith
Vice-President
Fax No. 617/664-5371
with a copy to: Bingham, Dana & Gould LLP
100 Pearl Street
Hartford, CT 06103
Attention: James G. Scantling, Esq.
Fax No. 860/527-5188
If to Lessee: The Pep Boys - Manny, Moe & Jack
(all Lessees shall 3111 W. Allegheny Avenue
be deemed notified Philadelphia, PA 19132
by notice to this Attention: Michael Holden
address) Senior Vice President-Finance
Fax No. 215/227-9533
with a copy to: The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention: Ronald M. Neifield, Esq.
Real Estate Counsel
Fax No. 215/229-5076
If to Agent: Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, NY 10528
Attention: EFL/CBL Credit Head
Fax No. 914/899-7308
with a copy to: Brown McCarroll & Oaks Hartline
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Attention: Charles W. Morris, Esq.
Fax No. 214/999-6170
Notices sent by any other method (including regular or certified mail, hand
delivery, or facsimile transmission) shall be deemed delivered when actually
received by the addressee. Any notice of change of address shall be effective
only upon actual receipt, regardless of delivery method, and such new address
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shall be effective as to notices given by the other parties commencing ten (10)
days after such change of address notice is received by such parties. No party
may establish an official address for notice outside the continental United
States.
22. No Default Certificate. Each party hereby shall, at the reasonable
request of the other party hereto, deliver to such other party a certificate
stating whether such other party has knowledge of, or has received notice from
any person of, any Environmental Event, Casualty, Condemnation, Incipient
Default or Event of Default.
23. Surrender. If upon the expiration or termination of the Term of
this Lease, or upon any partial termination of the Lease as to a Parcel pursuant
to Section 12(b), Lessee or its designee has not purchased the Property or
applicable Parcel as provided hereunder, the Lessee shall surrender the Property
or applicable Parcel to the Lessor in the condition in which the Property or
applicable Parcel was upon the addition of the Parcel to the Property or, in the
case of a Parcel on which New Improvements have been added, the condition in
which such Parcel existed at the time the Construction Advance in respect of
such New Improvements was made, except as repaired, rebuilt, altered or added to
as permitted or required hereby and except for ordinary wear and tear. In
addition, simultaneously with the surrender of the Property or applicable Parcel
to Lessor, Lessee shall deliver to Lessor and Agent a current "Phase I"
Environmental Assessment Report covering all portions of the Property or
applicable Parcel evidencing that the Property or applicable Parcel does not
appear, based on the visual review of same, to be in violation of Environmental
Laws or contaminated with any Hazardous Substances and that the consultant
issuing such report (which consultant must be acceptable to Agent) based on such
consultant's review of the Hazardous Substances handling practices of Lessee and
review of all documents and records with respect thereto does not recommend any
further testing or environmental remediation work on the Property or any portion
thereof. To the extent that the Property or applicable Parcel is not in such
condition upon such expiration or termination, the Lessee shall pay to the
Lessor such additional amounts as are reasonably required to place it in such
condition. The Lessee shall also surrender the Property or applicable Parcel to
the Lessor free and clear of all Liens, easements, consents and restrictive
covenants and agreements affecting the Property or applicable Parcel which the
Lessee is obliged hereunder to remove but Lessee shall not be required to remove
any Permitted Encumbrance or any other matter specifically approved for such
purpose in writing by Agent. Nothing contained in this Section 23 shall relieve
or discharge or in any way affect the obligation of the Lessee to cure promptly
pursuant to this Lease any violations of Legal Requirements referred to in this
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Lease, or to pay and discharge any Liens and Impositions against the Property or
applicable Parcel, subject, however, to the right of the Lessee to contest the
same pursuant to the provisions of Section 18. The Lessee, at its sole cost and
expense, shall remove from the Property or applicable Parcel on or prior to
expiration or termination all property situated thereon which is not owned by
the Lessor and shall repair any damage caused by such removal and shall restore
the Property or applicable Parcel to the condition (or reasonable equivalent
thereof) in which they existed immediately prior to the installation of such
property, except for ordinary wear and tear. Lessee shall indemnify and hold
harmless the Lessor against any loss, liability or claim arising out of the
Lessee's removal of such property from the Property or applicable Parcel.
Property not so removed shall be deemed abandoned by Lessee, shall become the
property of the Lessor, and the Lessor may cause such property to be removed
from the Property or applicable Parcel and disposed of, but the reasonable cost
of any such removal and disposition and of repairing any damage caused by such
removal and of the restoration of the Property or applicable Parcel to the
condition (or reasonable equivalent thereof) in which it existed immediately
prior to the installation of such property, ordinary wear and tear excepted,
shall be borne by the Lessee. The obligations of the Lessee under this Section
23 shall survive the expiration or any termination of this Lease (whether by
operation of Law or otherwise) for all matters described in this Section 23
which occur or arise prior to such expiration or termination or arise out of or
result from facts, events, claims, liabilities, actions or conditions occurring,
arising or existing on or before such expiration or termination.
24. Separability; Binding Effect; Governing Law; Non-Recourse
(a) Except as expressly provided otherwise in this Lease, each
provision hereof shall be separate and independent and the breach of any such
provision by the Lessor shall not discharge or relieve the Lessee from its
obligations to perform each and every covenant to be performed by the Lessee
hereunder. If any provision hereof or the application thereof to any Person or
circumstance shall be invalid or unenforceable, the remaining provisions hereof,
or the application of such provision to persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each provision hereof shall be valid and shall be enforceable to the extent
permitted by Law. All provisions contained in this Lease shall be binding upon,
inure to the benefit of, and be enforceable by, the respective permitted
successors and assigns of the Lessor and the Lessee to the same extent as if
each successor and assignee were named as a party hereto. Further, all rights of
the Agent and/or Instrument Holders hereunder shall inure to the benefit of each
successor and assignee of Agent, in its capacity as such, or any successor
holder of any Instrument. This Lease may not be changed, modified or discharged
except by a writing signed by the Lessor and the Lessee and approved in writing
by Agent. Any change, modification or discharge made otherwise than as expressly
permitted by this Section 24 shall be null and void. THIS LEASE SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
PENNSYLVANIA, WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES; PROVIDED THAT
TO THE EXTENT THAT AT ANY TIME A PORTION OF THE PROPERTY IS LOCATED IN A STATE
OTHER THAN THE STATE OF PENNSYLVANIA THE LAWS OF SUCH STATE SHALL GOVERN SUCH
PROVISIONS, IF ANY, OF THIS LEASE AS BY THEIR NATURE MUST BE INTERPRETED AND
ENFORCED UNDER THE LAWS OF SUCH OTHER STATE WITH RESPECT TO MATTERS OCCURRING IN
OR AFFECTING SUCH STATE. IT IS EXPRESSLY AGREED, HOWEVER, THAT IT IS THE DESIRE
AND INTENT OF THE PARTIES THAT THE LAW OF THE STATE OF PENNSYLVANIA GOVERN ALL
PORTIONS OF THIS LEASE TO THE EXTENT THAT SUCH INTENT MAY BE HONORED WITHOUT
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VIOLATION OF THE LAW OR PUBLIC POLICY OF THE STATE IN WHICH ANY PORTION OF THE
PROPERTY IS LOCATED. All references in this Lease to "applicable Law" or terms
of similar import shall be interpreted consistent with the foregoing. This
Lease, when delivered, shall constitute an original, fully enforceable
counterpart for all purposes except that only the counterpart stamped or marked
"COUNTERPART NUMBER 1" shall constitute, to the extent applicable, "chattel
paper" or other "collateral" within the meaning of the Uniform Commercial Code
in effect in any jurisdiction.
(b) No recourse shall be had against the Lessor, Agent, and/or
any Instrument Holder or their employees, agents or shareholders, for any claim
based on any failure by the Lessor in the performance or observance of any of
the agreements, covenants or provisions contained in this Lease and in the event
of any such failure, recourse shall be had solely against the Property.
(c) It is acknowledged that from time to time various
Affiliates of the Original Lessee may become a party to this Lease as an
Additional Lessee as provided in Section 31 hereof. Each entity that becomes a
"Lessee" hereunder shall be jointly and severally liable for the obligations of
the "Lessee" hereunder. It is acknowledged, however, that no employee, agent,
director, officer or shareholder of any Lessee or any Additional Lessee (except
an agent or shareholder that is itself a Lessee hereunder) shall be liable for
the obligations of Lessee.
25. Headings and Table of Contents. The table of contents and the
headings of the various Sections and Exhibits of this Lease are for convenience
only and shall not affect the meaning of the terms and conditions of this Lease.
26. Waiver of Landlord's Lien. Lessor hereby waives any right to
distrain Lessee's Equipment and any landlord's lien or similar lien upon, or
security interest in Lessee's Equipment, regardless of whether such lien is
created by statute or otherwise. Lessor agrees, at the request of Lessee, to
execute a waiver of any landlord's or similar lien for the benefit of any
present or future holder of a security interest in, or lessor of, any of
Lessee's Equipment, subject to the approval of the form and substance of such
waiver by Agent, which approval shall not be unreasonably withheld or delayed.
Lessor acknowledges, and agrees to acknowledge in the future (in a written form
reasonably satisfactory to Lessee and Agent), to such persons, at such times and
for such purposes as Lessee may reasonably request, that Lessee's Equipment is
Lessee's property and that Lessor has no right, title or interest in any of
Lessee's Equipment.
27. Lessee's Obligation at Expiration.
(a) In addition to its other rights and obligations under
Section 14 hereof, Lessee shall, by notice given not less than six (6) months
prior to the Expiration Date, elect either to (i) purchase the Property as of
the Expiration Date (or such earlier date during the last six (6) months of the
Term as may be designated by Lessee) as provided for in Section 14(a)(i) for the
applicable Offer Purchase Price, in which case the transfer of the Property
shall be governed by the terms of Section 15; or (ii) terminate this Lease,
abandon all of the Property as of the Expiration Date and pay to the Lessor on
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the Expiration Date, in addition to any Net Rent, Additional Rent or other sums
that may be then due and payable to the Lessor hereunder, a "Contingent Rent
Payment" in the amount determined at the applicable time as provided for on
Exhibit "A" (as amended from time to time). If Lessee fails to give the notice
required in this Section 27(a) on or before the date that is six (6) months
prior to the Expiration Date, then Lessee shall be irrevocably deemed to have
elected the option provided for in clause 27(a)(i) and on the Expiration Date
(or such earlier date during the six month period preceding the Expiration Date
as Lessee may designate by reasonable notice to Lessor and Agent) Lessee shall
purchase the Property for the Offer Purchase Price.
(b) If Lessee elects to terminate the Lease pursuant to
Section 27(a)(ii) above, then Lessee, as agent for Lessor but at Lessee's sole
cost and expense, shall use its best efforts to sell the Property to a third
party at the maximum available market price not later than the date that is
thirty (30) days after the Expiration Date. Lessor shall join in any sale at or
above the Minimum Price and Agent's approval of such sale will not be required;
however, Lessee may not sell the Property without the consent of Agent, which
consent may not be given without the approval of the Majority Holders, and in
any event may be withheld at Agent's sole and absolute discretion, if the
purchase price is less than the Minimum Price. To the extent that the net sale
proceeds of the Property received by Lessor upon any such sale are more than the
amounts necessary to permit Lessor to discharge all amounts due to the
Instrument Holders and/or the Lessor under the Transaction Agreement and/or the
Transaction Documents (a sale price that will produce net sale proceeds, after
all transaction costs, in such amount being referred to as the "Minimum Price"),
then Lessor shall credit against the Contingent Rent Payment (or refund to
Lessee if the Contingent Rent Payment has theretofore been paid) all such excess
payments up to, but not in excess of, the full amount of the Contingent Rent
Payment. If Lessee has failed to cause the Property to be sold within such
period, Lessee's rights under this subsection (b) shall cease and Lessor shall
thereafter have the sole and exclusive right to sell or dispose of the Property
solely for the account of the Instrument Holders. If the net sale proceeds of
any such proposed sale arranged by Lessee are to be less than the Minimum Price
(or if Lessee does not propose a sale and Lessor or Agent is unable to sell the
Property prior to the Expiration Date for an amount to produce net sale proceeds
equal to or in excess of the Minimum Price), then Lessor or Agent may order an
MAI appraisal of the Property, at Lessee's sole cost and expense, prior to the
closing of any proposed sale by Lessee (or if Lessee does not propose such a
sale, after Lessor's or Agent's reasonable efforts to sell the Property for an
amount equal to or in excess of the Minimum Price) to determine the fair market
value of the Property at such time (the "Appraised Value") as well as what the
Appraised Value of the Property would have been if the Property has been
maintained in good repair and condition and otherwise in accordance with Section
9 of this Lease, subject to normal wear and tear (the "Nominal Appraised
Value"). If such appraisal indicates a Nominal Appraised Value for the Property
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that is greater than the price to be received in the sale proposed by Lessee
(or, if Lessee does not propose a sale, such appraisal indicates an actual
Appraised Value for the Property that is less than the Nominal Appraised Value,
or a Nominal Appraised Value that is greater than the price that would have been
received by Lessor or Agent had they accepted the best written bona fide offer
from a purchaser ready, willing and able to close), then Lessee shall pay to
Lessor a sum equal to the lesser of (A) the amount by which the actual Appraised
Value, or the proposed, actual or possible sale price, as applicable, is less
than the Minimum Price, or (B) the difference between the Nominal Appraised
Value and the proposed, actual or possible net sales proceeds or the actual
Appraised Value (whichever is applicable) as an additional "Contingent Rent
Payment" in order to compensate Lessor for extraordinary wear and tear on the
Property.
(c) If the mechanical provisions of Section 27(b) above are
applicable to a situation where the Lease has been terminated as to less than
the entire Property, then the "Minimum Price" for application of the foregoing
provisions shall be that amount which will produce net sale proceeds (after
applicable closing and transaction costs) sufficient to permit the Lessor (or
Agent on behalf of the Lessor) to pay to the applicable Instrument Holders the
amount that such Instrument Holders would have received if, in lieu of
terminating the Lease and making the Contingent Rent Payment, the Lessee had
purchased the Parcel(s) in question and paid the Offer Purchase Price therefor,
taking into account the additional interest or certificate yield, as applicable,
accrued on the Instruments in question with respect to the amount that would
have been paid on sale of the Property to Lessee at the Offer Purchase Price but
which remained unpaid on the date of such partial termination of the Lease as a
result of the Contingent Rent Payment being less than the Acquisition Price of
the Parcel(s) in question.
(d) Lessor shall reasonably cooperate in any sale of the
Property by Lessee (after approval of the sale by Agent, where required), but at
Lessee's sole cost and expense, such cooperation to include execution of
contracts of sale, closing documents, and related materials; provided that
Lessor shall not be required to incur any liability beyond its interest in the
Property in connection therewith.
28. No Merger. Unless and until execution of a written agreement to the
contrary by a single Person that at the time thereof holds all of the interests
of both Lessor and Lessee in the Property, and the full payment and discharge of
the Instruments and release of Transaction Mortgage held by Agent on the
Property, there shall be no merger of this Lease or of the leasehold estate
created by this Lease with the fee or any other estate or interest in or the
Property or any portion thereof by reason of the fact that the same person owns
or holds, directly or indirectly, all such estates and interests or any
combination thereof.
29. Short Form Lease. Lessee agrees not to record this Lease, but
Lessor and Lessee shall execute a memorandum or short-form of lease in form
reasonably satisfactory to Lessor and Lessee in each jurisdiction where any
portion of the Property is located. The memorandum of lease may be recorded by
Lessee at any time. Lessor agrees that it will not record a memorandum of this
Lease if requested not to do so by Lessee unless Lessor or Agent determines,
based upon written advice of counsel, that recordation of such memorandum of
this Lease is advisable for the protection of the interests of the Lessor or the
Instrument Holders.
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30. Protection of Instrument Holders
(a) Rights of Instrument Holders. Notwithstanding anything in
this Lease, so long as amounts owing under any of the Instruments, or any of the
Transaction Documents, remain unpaid, (i) Agent and each Purchaser and
Instrument Holder shall be third party beneficiaries of the provisions of this
Lease, including, without limitation, all provisions of this Section 30, and
Section 8 hereof, (ii) Lessor and Lessee acknowledge that each has been
sufficiently notified and apprised of the Purchasers and Instrument Holders, and
the mailing address of Agent, as the administrative agent acting on behalf of
the Instrument Holders, as contemplated by the provisions of this Section 30 and
any other provision of this Lease, and (iii) this Lease shall not be amended,
modified or assigned (collaterally or directly), in any respect without the
prior written consent of Agent.
(b) Subordination and Non-Disturbance. Simultaneously with the
addition of a Parcel to the Property, Lessor will execute and record a mortgage
or deed of trust (as applicable, the "Transaction Mortgage") on the Property to
Agent for the benefit of the Noteholders as provided for in the Transaction
Agreement, and Lessor, Lessee, and Agent (on behalf of the Noteholders) shall
enter into a Subordination, Non-Disturbance, and Attornment Agreement (the
"SNDA") covering this Lease with respect to the Parcel in question and relating
to the Transaction Mortgage in substantially the form attached hereto as Exhibit
"F". In the event of any default by Lessor hereunder, Lessee shall notify Agent
of such default in accordance with Section 21 hereof. Agent, on behalf of the
Noteholders, shall thereafter have a reasonable opportunity (but no obligation)
to cure Lessor's default, including time to obtain possession of the Property by
power of sale or judicial foreclosure of the Transaction Mortgage, if same
should prove necessary to effect a cure, before Lessee may take any action
against Lessor. Lessee shall accept a cure of Lessor's default from Agent in the
event that Agent tenders such cure on behalf of the Noteholders.
31. Additional Lessees
(a) From time to time Lessee Parent may request that one or
more wholly-owned Subsidiaries of the Lessee Parent be approved by Agent to
become a Lessee under this Lease, which approval shall not be unreasonably
withheld. Any such Person approved by Agent shall be referred to as an
"Additional Lessee", and from and after the date of execution of a Supplement to
this Lease in substantially the form attached hereto as Exhibit "G" such
Additional Lessee shall be a party to this Lease in the same manner as if such
Additional Lessee had been an original Lessee hereunder.
(b) From and after the date on which an Additional Lessee
becomes a party hereto, such Additional Lessee shall be jointly and severally
liable for any and all obligations of the "Lessee" hereunder, whether accruing
or arising before or after the date such Additional Lessee becomes a party
hereto. The assumption of liability hereunder by any Additional Lessee shall not
reduce or limit the obligations of any other Person that is or becomes a party
hereto as a Lessee.
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(c) Agent may, as a condition to its approval of the
Supplement making one of the Additional Lessees a party hereto, require legal
opinions, review of corporate authorizations and other corporate documents, and
similar matters comparable to those required by Lessor and Agent with respect to
the Lessee Parent and the other original Lessees in connection with the original
execution hereof.
32. Certain Representations and Covenants of Lessee. The terms of this
Section 32 shall, as of the date hereof, be binding upon each Lessee. At such
time as any Additional Lessee becomes a party to this Lease pursuant to Section
31 above, each such Additional Lessee will be required to make similar
representations and warranties and assume comparable obligations pursuant to the
instrument by which they become a party to this Lease.
(a) Representations and Warranties. The Lessees jointly and
severally represent and warrant to Lessor, Agent, and each Instrument Holder
that, as to each Lessee:
(i) Lessee (A) is duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of its incorporation, (B) has full corporate power and authority to own
and operate its properties and to conduct its business as presently
conducted, and full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Lease, (C) is
duly qualified to do business as a foreign corporation in good standing
in each jurisdiction in which its ownership or leasing of properties or
the conduct of its business requires such qualification.
(ii) This Lease has been duly authorized, executed
and delivered by Lessee and is a legal, valid and binding obligation of
Lessee, enforceable according to its terms (subject as to enforcement
of remedies to any applicable bankruptcy, reorganization, moratorium,
or other Laws or principles of equity affecting the enforcement of
creditors' rights generally).
(iii) The execution, delivery and performance by
Lessee of this Lease will not result in any violation of any term of
the certificate of incorporation or the by-laws of Lessee, does not
require stockholder approval or the approval or consent of any trustee
or holders of debt of Lessee except such as have been obtained prior to
the date hereof, and will not conflict with or result in a breach of
any terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien upon, any property or assets of
Lessee under, any indenture, mortgage or other agreement or instrument
to which Lessee is a party or by which it or any of its property is
bound, or any existing applicable law, rule, regulation, license,
judgment, order or decree of any government, governmental body or court
having jurisdiction over Lessee or any of its activities or properties,
including, without limitation, any rule or order of any public utility
commission or other governmental body.
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(iv) There are no consents, licenses, orders,
authorizations or approvals of, or notices to or registrations with any
governmental or public body or authority which are required in
connection with the valid execution, delivery and performance of this
Lease by Lessee that have not been obtained or made, and any such
consents, licenses, orders, authorizations, approvals, notices and
registrations that have been obtained or made are in full force and
effect.
(v) Except as disclosed in writing to Agent by Lessee
concurrently herewith or publicly disclosed in Lessee Parent's 10-Q
and/or 10-K filings with the Securities and Exchange Commission, if
any, (A) there is no action, suit, proceeding or investigation at law
or in equity by or before any court, governmental body, agency,
commission or other tribunal now pending or, to the best knowledge of
Lessee after due inquiry, threatened against or affecting Lessee or any
property or rights of Lessee as to which there is a significant
possibility of an adverse determination, and which if adversely
determined, may have a material adverse effect on the financial
condition or business of Lessee or which, if adversely determined could
materially impair the ability of Lessee to perform its obligations
under this Lease, and (B) there is no action, suit, proceeding or
investigation at law or in equity by or before any court, governmental
body, agency, commission or other tribunal now pending or, to the best
knowledge of Lessee after due inquiry, threatened which questions or
would question the validity of this Lease.
(vi) Lessee is not in default under or with respect
to any agreement or other instrument to which it is party or by which
it or its assets may be bound which would have a material adverse
effect on the financial condition of Lessee or the ability of Lessee to
perform its obligations under this Lease. Lessee is not subject to or
in default under any order, award or decree of any court, arbitrator,
or other governmental authority binding upon or affecting it or by
which any of its assets may be bound or affected which would have a
material adverse effect on the ability of Lessee to carry on its
business as presently conducted or to perform its obligations under
this Lease.
(vii) Lessee has filed or caused to be filed all tax
returns which to the knowledge of Lessee are required to be filed, and
has paid all taxes shown to be due and payable on said returns or on
any assessments made against it, except for (i) returns which have been
appropriately extended and (ii) taxes, fees, assessments or other
charges, the amount or validity of which is currently being contested
in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of
Lessee.
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(viii) Lessee and each of its Subsidiaries are in
compliance in all material respects with the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations
thereunder insofar as ERISA, the Code and such rules and regulations
relate to any employee benefit plan as defined in Section 3(3) of
ERISA. No employee pension benefit plan (as defined in Section 3[2] of
ERISA) maintained by Lessee or any of its Subsidiaries for its
employees and covered by ERISA (a "Plan") had an "accumulated funding
deficiency", within the meaning of said term under Section 302 of
ERISA, as of the last day of the most recent fiscal year of such Plan,
and neither Lessee nor any of its Subsidiaries has incurred with
respect to any Plan any liability to the Pension Benefit Guaranty
Corporation ("PBGC") which is material to the consolidated financial
condition of Lessee or any of its Subsidiaries. For the purpose of this
subsection (viii), the term "Subsidiary" shall include a Controlled
Group of Corporations as that term is defined in Section 1563 of the
Code or Section 4.001 of ERISA.
(ix) The consolidated financial statements of Lessee
Parent furnished to Lessor and Agent on or before the date hereof have
been prepared in accordance with GAAP and fairly present the financial
condition of Lessee Parent as of the date thereof. Since the date of
such financial statements there has been no material adverse change in
the financial condition or business of Lessee Parent which would impair
the ability of Lessee Parent to perform its obligations hereunder.
(b) Affirmative Covenants. Lessee covenants and agrees with
Lessor, Agent and the Instrument Holders that, so long as this Lease shall
remain in effect each Lessee will, unless Lessor and Agent shall otherwise
consent in writing:
(i) Compliance with Laws. Comply, and cause each of
its Subsidiaries to comply, in all material respects with all
applicable Laws, for which the failure to so comply could have a
material adverse effect on the operations of Lessee as a whole so as to
adversely affect its capacity to perform its obligations under this
Lease, and such compliance shall include, without limitation, paying
before the same become delinquent all taxes imposed upon it or its
property, except to the extent contested diligently and in good faith,
and for which adequate reserves are established.
(ii) Maintenance of Existence; Licenses and
Franchises. Maintain, and cause each of its Subsidiaries that is a
Lessee or an approved Additional Lessee to maintain, its existence, and
preserve and maintain, and shall cause each of its Subsidiaries that is
a Lessee or an approved Additional Lessee to preserve and maintain, all
material licenses, privileges, franchises, certificates, authorizations
and other permits and agreements necessary for the operation of its
business in the respective jurisdictions in which any Property leased
by Lessee or such Additional Lessee, as applicable, is located, and in
its jurisdiction of origin.
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(iii) Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance policies with respect to its
property and business in such amounts and against such casualties and
contingencies as is customary in its industry; provided that nothing
herein shall prejudice the right of Lessee or any Subsidiary thereof to
self-insure for certain risks in accordance with customary procedures.
(iv) Additional Information. Lessee shall furnish to
Agent: (1) within sixty (60) days of the end of each quarterly fiscal
period during the Term, unaudited quarterly financial statements for
Lessee Parent (and its consolidated Subsidiaries) (including a balance
sheet, income statement, and such other reports as Agent may reasonably
request); (2) within one hundred twenty (120) days of the end of each
fiscal year during the Term, annual financial statements for Lessee
Parent (and its consolidated Subsidiaries) audited by a nationally
recognized public accounting firm (including a balance sheet, income
statement and such other material reports as Agent may reasonably
request); (3) when issued or filed, copies of the most recent 10-K for
Lessee Parent, proxy statements, financial statements and other reports
filed by Lessee Parent with the Securities and Exchange Commission or
any national securities exchange or market on which any of Lessee
Parent's securities are traded or quoted; (4) from time to time upon
Agent's request, an Officer's Certificate stating that there exists no
Event of Default (or event or circumstance which with notice and or the
passage of time could mature into an Event of Default) under this Lease
or, if any such event or circumstances does exist, specifying the
nature and period of existence thereof and what action Lessee proposes
to take with respect thereto; and (5) from time to time at the request
of Agent, and in any event simultaneously with delivery of the annual
consolidated financial statements of the Lessee Parent, a statement
certified by a senior financial officer of the Lessee Parent (A)
certifying that the Lessee Parent is in compliance with all of the
financial covenants (both affirmative and negative) contained in the
Lease Guarantee and (ii) certifying the Leverage Ratio, Tangible Net
Worth, Current Ratio, and NOP/Interest Charges Ratio (as such terms are
defined in the Lease Guarantee) of the Lessee Parent as of the end of
the preceding quarter or fiscal year, or for the preceding quarter or
fiscal year, as applicable. The fiscal year of the Lessee Parent is the
approximately fifty-two (52) week period ending on the Saturday falling
nearest to January 31.
(v) Review of Records. Further, Lessee will permit
the duly authorized representatives of Agent at all reasonable times
upon at least ten (10) days prior written notice to examine the books
and records of Lessee and its Subsidiaries, and take memoranda and
extracts therefrom; provided, that information, including financial
information, which is non-public and confidential or proprietary in
nature disclosed to Agent (as a result of any examination of the books
and records of Lessee and its Subsidiaries or pursuant to Section
32(b)(iv) or otherwise) will be kept confidential and will not, without
the prior written consent of Lessee, be disclosed in any manner
whatsoever, in whole or in part, except that Agent shall be permitted
to disclose such information (A) to the Instrument Holders (who shall
be bound by the same confidentiality requirements upon receipt of such
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information), (B) to any regulatory agencies having jurisdiction over
Agent or any Instrument Holder in connection with their regulatory
functions, and (C) as required by Law or court order, or in connection
with any investigation or proceeding arising out of the transactions
contemplated by this Lease.
(vi) Taxes, Charges, Etc. Duly pay and discharge, or
cause to be paid and discharged, when due, all taxes, assessments and
other governmental charges imposed upon it or any Subsidiary that is an
approved Additional Lessee and its and their properties, or any part
thereof or upon the income or profits therefrom, as well as all claims
for labor, materials or supplies which if unpaid could have a
materially adverse effect on the operations of Lessee as a whole so as
to adversely affect Lessee's capacity to perform its obligations under
this Lease, except such items as are being in good faith appropriately
contested by Lessee or any applicable Subsidiary and for which adequate
reserves are being maintained in accordance with GAAP.
(c) Negative Covenants. Lessee covenants and agrees with
Lessor and Agent that, so long as this Lease shall remain in effect Lessee will
not, unless Agent shall otherwise consent in writing:
(i) The Lessee will not, nor will it permit any of
its Subsidiaries to, enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution). The Lessee will not make,
and will not permit any of its Subsidiaries to make, any acquisition
(in one transaction or a series of related transactions) in excess of
$50,000,000. The Lessee will not, and will not permit any of its
Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of
in one transaction or a series of transactions, all or a substantial
part of its business or assets, whether now owned or hereafter acquired
(including, without limitation, receivables and leasehold interests,
but excluding (i) any inventory or other assets (including real
property) sold or disposed of in the ordinary course of business and
(ii) obsolete or worn-out property, tools or equipment no longer used
or useful in its business). Notwithstanding the foregoing provisions:
(1) any Subsidiary of the Lessee may be
merged or consolidated with or into: (i) the Lessee or another
Lessee if the Lessee or another Lessee shall be the continuing
or surviving corporation or (ii) any other such Subsidiary;
provided that if any such transaction shall be between a
Subsidiary and a wholly-owned Subsidiary, the wholly-owned
Subsidiary shall be the continuing or surviving corporation;
(2) any such Subsidiary may sell, lease,
transfer or otherwise dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to the Lessee or
another Lessee or a wholly-owned Subsidiary of the Lessee or
another Lessee; and
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(3) any Lessee may sell, lease, transfer or
otherwise dispose of all or any of its assets (upon voluntary
liquidation or otherwise) to any other Lessee.
(ii) Lines of Business. Engage or, in the case of
Lessee Parent, permit any of its Subsidiaries that are approved
Additional Lessees to engage, to any substantial extent in any line or
lines of business activity other than the business of owning and
operating retail stores and auto service centers (including functions
that are directly related thereto and supportive thereof).
(iii) Change of Control. Permit the occurrence of any
Change of Control with respect to Lessee Parent or any approved
Additional Lessee; provided, however, that a Change of Control as to
the Lessee Parent shall not constitute a violation of this Lease if, as
of the date that such Change of Control occurs, the senior unsecured
debt of the Lessee Parent is rated BBB or better by Standard & Poors
and/or Baa2 or better by Moody's Investors Services, and the Lessee
Parent or its securities are not in a "credit watch" status with either
such rating service.
(iv) Judgments. Permit or acquiesce in the entry of
any final unappealable judgment or order for the payment of money in
excess of $1,000,000.00 against Lessee or any of its Subsidiaries;
provided, however, that any such judgment or order shall not be an
Event of Default if and for so long as (x) the entire amount of such
judgment or order is covered (subject to customary deductibles) by a
valid and binding policy of insurance between the defendant and the
insurer covering payment thereof and (y) such insurer, which shall be
rated at least "B+/X" by A. M. Best Company, has been notified of, and
has not disputed the claim made for payment of the amount of such
judgment or order.
(v) Limitation on Liens. The Lessee will not, nor
will it permit any of its Subsidiaries to, create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, except:
(1) Liens imposed by any governmental
authority for taxes, assessments or charges not yet due or
which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are
maintained on the books of the Lessee or any of its
Subsidiaries, as the case may be, in accordance with GAAP;
(2) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which are not overdue for a period
of more than 30 days or which are being contested in good
faith and by appropriate proceedings;
53
<PAGE>
(3) pledges or deposits under worker's
compensation, unemployment insurance and other social security
legislation;
(4) deposits to secure the performance of
bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the
ordinary course of business;
(5) Liens on assets of corporations which
become Subsidiaries of the Lessee after the date of this
Lease, provided that such Liens are in existence at the time
the respective corporations become Subsidiaries of the Lessee
and were not created in anticipation thereof;
(6) Liens upon real property, fixtures and
equipment (excluding equipment that constitutes inventory)
acquired after the date hereof (by purchase, construction or
otherwise) by the Lessee or any of its Subsidiaries;
(7) Liens upon the assets of the Lessee and
its Subsidiaries in existence on the date hereof; and
(8) any extension, renewal or replacement of
the foregoing, provided, however, that the Liens permitted
hereunder shall not be spread to cover any additional
Indebtedness or property (other than a substitution of like
property).
As used in this Section 32(c), the following terms have the meanings indicated
below:
"Change of Control" means, after the date hereof, (A) as to Lessee
Parent, any event or circumstance that results in a majority of the
individuals comprising the board of directors of the Lessee Parent as
of any date to consist of individuals that were not members of the
board of directors of the Lessee Parent twelve (12) months previous to
such date (other than by reason of death), or (B) as to any other
Lessee, any event or circumstance that results in such Lessee not being
a wholly owned Subsidiary of the Lessee Parent.
"GAAP" shall mean generally accepted accounting principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time
to time, and (b) consistently applied with past financial statements of
any Person adopting the same principles.
54
<PAGE>
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
of such asset. For purposes of this Lease, Lessee or any of its
Subsidiaries shall be deemed to own subject to a Lien any asset which
it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).
"Subsidiary" shall mean, as to any Person, any corporation of which at
least a majority (or in the case of a wholly-owned Subsidiary, 100%) of
the outstanding shares of stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether or not at the time stock of any
other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries.
33. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
AND FOR THE PURPOSE OF REDUCING THE TIME AND EXPENSE OF LITIGATION, LESSOR AND
LESSEE WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON, UNDER, OR BY VIRTUE OF THIS
AGREEMENT.
34. Exhibits. The following Exhibits are attached hereto and made a
part hereof for all purposes.
Annex I - Approved Self-Insurance Program
Exhibit A - Net Rent; Additional Rent
Exhibit B - Form of Supplement for Addition of Parcels
Exhibit C - Construction Addendum
Exhibit D - Form of Construction Supplement
Exhibit E - Form of Interim Supplement
Exhibit F - Form of SNDA
Exhibit G - Form of Supplement for Additional Lessee(s)
35. Special Local Provisions. It is expressly agreed that this Lease
may be amended or supplemented, as necessary, with any special local provisions
or requirements deemed necessary by Lessor or Agent, which provisions shall be
included in the Supplement adding the portions of the Property to which such
special provisions shall be applicable to the coverage of this Lease.
55
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Lease to be duly executed on the attached signature
pages by their respective officers thereunto duly authorized, to be effective as
of the day and year first above written.
[SEE ATTACHED SIGNATURE PAGES]
56
<PAGE>
SIGNATURE PAGE OF LESSOR
ATTACHED TO
MASTER LEASE
(1997 PEP BOYS II LEASED PROPERTY)
LESSOR:
-------
STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company not in its
individual capacity but solely as Trustee
under the Declaration of Trust
By: _____________________________________
Name: ___________________________________
Title: __________________________________
57
<PAGE>
SIGNATURE PAGE OF LESSEE
ATTACHED TO
MASTER LEASE
(1997 PEP BOYS II LEASED PROPERTY)
LESSEE:
THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
THE PEP BOYS MANNY MOE & JACK OF
CALIFORNIA, a California corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
PEP BOYS - MANNY, MOE & JACK OF DELAWARE,
INC., a Delaware corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
58
<PAGE>
ANNEX I
Approved Self-Insurance Program
<PAGE>
EXHIBIT "A"
Net Rent; Additional Rent and Related Definitions
Capitalized terms used herein and not defined herein shall have the
meanings assigned to them in the Lease to which this Exhibit "A" is attached
(including terms defined by reference in the Lease to other instruments or
documents).
A. Net Rent. Net Rent during the Term shall be due and payable monthly
in arrears on each Payment Date in an amount determined by multiplying (1) the
then applicable Acquisition Price for the Property times (2) the lesser of the
Applicable Rate for the LIBO Rate Period in which such month falls or the
highest lawful rate times (3) a fraction, the numerator of which is the actual
number of days in the month in question, and the denominator of which is 360 (or
if the highest lawful rate is used in lieu of the Applicable Rate, 365 or 366,
as applicable).
"Payment Date" means the first (1st) day of each calendar
month to and including the last day of the Term, as well as the last day of the
Term itself; provided, however, that if such Payment Date is not a Business Day,
such Payment Date shall be the next succeeding Business Day. It is acknowledged
that for the period between the date a Parcel is added to the Property or a
Construction Advance is made in respect of New Improvements and the next
Adjustment Date the Net Rent will be computed using multiple Applicable Rates
applied to the respective Acquisition Prices, as set forth in the next sentence,
and the payments shall be adjusted accordingly. In the event this Lease is
terminated as to a Parcel and the Improvements thereon pursuant to the terms
hereof, or a Parcel or Improvements thereon are added to the Property, or a
Construction Advance is made, the Net Rent shall be adjusted, as of the date of
such termination or addition, by eliminating from the aggregate Acquisition
Price (in the case of a partial termination) or adding to the aggregate
Acquisition Price (in the case of the addition of a Parcel and Improvements or a
Construction Advance in respect of New Improvements) the portion of the
aggregate Acquisition Price thereof attributable to the portion of the Property
so released or added.
If, at any time, the Applicable Rate then in effect shall
exceed the highest lawful rate, then any subsequent reductions in the Applicable
Rate shall not reduce the Net Rent below the amount of Net Rent that would be
payable hereunder if the Applicable Rate were equal to the highest lawful rate
until the total amount of Net Rent accrued hereunder equals the amount of Net
Rent that would have accrued hereunder if the Applicable Rate had at all times
been the Applicable Rate without the limitation of the highest lawful rate. In
the event that at the Expiration Date (howsoever the Expiration Date occurs) the
total amount of Net Rent paid or accrued hereunder is less than the total amount
of Net Rent that would have accrued if the Applicable Rate had at all times been
in effect without the limitation of the highest lawful rate, then Lessee agrees,
to the fullest extent permitted by Law, to pay to Lessor on the Expiration Date
an amount equal to the difference between (a) the lesser of (i) the amount of
Net Rent that would have accrued hereunder if the highest lawful rate had at all
<PAGE>
times been utilized to compute the Net Rent accruing hereunder, or (ii) the
amount of Net Rent that would have accrued hereunder if the Applicable Rate had
at all times been utilized to compute the Net Rent without the limitation of the
highest lawful rate, and (b) the amount of Net Rent otherwise accrued hereunder.
The parties agree to modify the Applicable Rate payable
hereunder as contemplated in the Transaction Agreement to provide to Lessee the
financial benefit of any interest or yield reductions on the Instruments.
B. Additional Rent. In addition to such Additional Rent as may
otherwise be payable under the Lease, Lessee shall pay, within thirty (30) days
of a demand therefor, as Additional Rent, all Break Costs, Reserve Costs,
Increased Costs and/or all reasonable expenses as set forth elsewhere herein or
in the Transaction Documents of Lessor or Agent required to be paid by Lessee
pursuant to this Lease, the Transaction Agreement, or any Transaction Document.
C. Definitions. As used herein, the following terms have the following
meanings:
"Acquisition Price" means the amount attributable to the
Property (in the aggregate) or a particular Parcel, as applicable, as set out at
the time in question on the most recent Schedule "A-1" to the Lease. The Parcel
Addition Supplement by which any Parcel is added to the Property and the Interim
Supplement or the Construction Supplement with respect to the Construction
Advance related to any Improvements shall designate the increase in the
Acquisition Price attributable thereto and any other agreed adjustment to the
Acquisition Price Schedule by the attachment of an updated Schedule "A-1". At
such time as this Lease is terminated as to any Parcel and either the Offer
Purchase Price, the Contingent Rent Payment, or the Construction Failure Payment
amount applicable thereto is paid under any applicable provision of this Lease,
the Parcel in question shall no longer be part of the Property, the portion of
the Acquisition Price previously applicable to such Parcel shall no longer be a
part of the Acquisition Price of the Property for any purpose, and Schedule A-1
shall be adjusted to reflect the exclusion of such Parcel from the Property.
"Adjustment Date" means the first day of each month throughout
the Term.
"Applicable Rate" means, for any month, as applicable (A) the
sum of (i) the LIBO Rate for the LIBO Rate Period in which such month falls,
plus (ii) the Applicable Spread or (B) as to the portion of the Acquisition
Price attributable to a Parcel or a Construction Advance prior to the first
Adjustment Date after such Parcel is added to the Property or such Construction
Advance is made, the sum of the Special LIBO Rate applicable thereto plus the
Applicable Spread.
<PAGE>
"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) 45.0 basis points (0.45%)
BBB 49.8 basis points (0.498%)
BBB- 59.4 basis points (0.594%)
less than BBB- 81.0 basis points (0.81%)
"Break Costs" shall mean an amount equal to the amount (if
any) required to compensate any Instrument Holder for any additional losses
(including, without limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or funds acquired by such Instrument
Holder to fund or maintain a Trust Instrument) it may reasonably incur as a
result of Lessee's payment of the Offer Purchase Price, or the Contingent Rent
Payment other than on an Adjustment Date or the Expiration Date.
"Business Day" means every day on which banks in the cities of
New York, New York, Chicago, Illinois, Boston, Massachusetts, and Philadelphia,
Pennsylvania, are open for business and not required to be closed.
"Contingent Rent Payment" means, as of any relevant time, an
amount equal to the lesser of (A) eighty-four percent (84%) of the aggregate of
all Advances theretofore made under the Transaction Agreement (less any amounts
theretofore paid by Lessee as Contingent Rent Payments or Construction Failure
Payments), or (B) 100% of the Acquisition Price of the Parcels remaining subject
to this Lease as of the date the Contingent Rent Payment is made. In the event
that any Parcel(s) are purchased by Lessee during the period ending on the
Outside Funding Date (as defined in the Transaction Agreement), pursuant to any
option or obligation of Lessee to make such purchase hereunder, the Contingent
Rent Payment computed under clause (A) above shall be recomputed so as to equal
eighty-four percent (84%) of the aggregate of all Advances theretofore made
under the Transaction Agreement excluding Advances theretofore made in respect
of the Parcel(s) purchased by Lessee during such period. The parties acknowledge
that the obligation for the payment of Contingent Rent Payments is a rental
obligation in consideration of the lease of the Property to Lessee hereunder,
and that Lessee has agreed to make the Contingent Rent Payment when due
hereunder in consideration of the Lessor's agreement to accept Net Rent payments
during the Term in a lower amount than Lessor would otherwise be willing to
accept.
<PAGE>
"Increased Costs" means any additional amounts required to be
paid to any Instrument Holder by Lessor under the Transaction Agreement to
compensate such Instrument Holder for any increased costs of maintaining the
Instruments or the advances evidenced thereby (the effect of which was not
included in the applicable Instrument Holder's determination of such costs at
the more recent to occur of the original issuance of such Instrument or the date
of adjustment of the Note Rate or Certificate Rate applicable to such Instrument
or applicable interest therein in connection with the Secondary Transaction) as
a result of the implementation after the date hereof of any applicable Law
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Instrument Holder (or any office thereof) with
any request or directive regarding capital adequacy (whether or not having the
force of Law) of any such authority, central bank or comparable agency which has
the effect of increasing the amount of capital required or expected to be
maintained as a result of its maintaining the Instruments held by it.
"LIBO Business Day" means a day of the year on which dealings
are carried on in the London interbank market and banks are open for business in
London and not required or authorized to close in New York City.
"LIBO Rate" for the period commencing on the date hereof to
the first Adjustment Date and for each period commencing on any Adjustment Date
to and until the next succeeding Adjustment Date (each, a "LIBO Period") means
an interest rate per annum equal to the average (rounded, if necessary, to the
next highest 1/16 of 1%) of the rates of interest per annum at which deposits in
United States dollars are offered to prime banks in the London interbank market
at 11:00 a.m. (London time) two LIBO Business Days before the first day of such
LIBO Period (the "Interest Setting Date") for a period equal to such LIBO
Period.
"LIBO Rate Reserve Percentage" for any LIBO Period means the
reserve percentage applicable to the Instrument Holders during such LIBO Period
under the regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or if more than one such percentage is so applicable,
the daily average for such percentages for those days in such LIBO Period during
which any such percentage shall be so applicable) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for the Instrument Holders in respect of
liabilities or assets consisting of or including Eurocurrency Liabilities (as
defined in Regulation D of the Board of Governors of Federal Reserve System as
in effect from time to time) having a term equal to such LIBO Period.
"Reserve Costs" means, so long as any Instrument Holder
hereafter shall be required under regulations of the Board of Governors of the
Federal Reserve System to maintain reserves in excess of those maintained at the
more recent to occur of the original issuance of the applicable Instrument or
the date of adjustment of the Note Rate or Certificate Rate applicable to such
Instrument or applicable interest therein in connection with the Secondary
<PAGE>
Transaction with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional amounts equal to the product of (1) the
outstanding balance of the Instruments held by such Instrument Holder,
multiplied by (2) an interest rate per annum equal at all times during the
period in which such reserves were assessed to the remainder obtained by
subtracting (a) the LIBO Rate for the applicable period from (b) the rate
obtained by dividing such LIBO Rate applicable during such period by a
percentage equal to 100% minus the then applicable LIBO Rate Reserve Percentage,
payable on each Payment Date.
Promptly after Lessor receives notice from Agent or any
Instrument Holder of any Reserve Costs or Increased Costs to be payable as
Additional Rent Lessor shall notify the Lessee of the same; provided, however,
that the failure to provide such notice as to Increased Costs shall not affect
the Lessor's right to recover Additional Rent for the same. A certificate in
reasonable detail (i) setting forth the basis for and the amount of such costs
submitted by the Lessor to the Lessee and (ii) in the case of Increased Costs,
setting forth in reasonable detail the calculation of the same and that the
Instrument Holder has certified to the Lessor that such Increased Costs are
generally being charged by the Instrument Holder to other similarly situated
persons under similar arrangements, which notice shall be conclusive and binding
for all purposes, absent manifest error, unless such notice fails to set forth
the information required above as to the Increased Costs.
"Special LIBO Rate" means, for any period commencing on the
date any Parcel is added to the Property or a Construction Advance is made, as
applicable, through the next Adjustment Date, an interest rate per annum equal
to the rate of interest per annum at which deposits in United States dollars are
offered to prime banks in the London interbank market at 11:00 a.m. (London
time) two LIBO Business Days before the date such Parcel is added to the
Property, or the Construction Advance is made, for a period equal to the period
between such date and the next Adjustment Date. The Special LIBO Rate shall be
used to determine the Applicable Rate only for that portion of the Acquisition
Price attributable to the Parcel in question and/or the construction advance in
question, but only through the next Adjustment Date.
<PAGE>
FORM OF
SCHEDULE "A-1"
Schedule of Acquisition Prices
Date of Schedule: __________, 199__
Applicable Portion of
Parcel Acquisition Price
------ ---------------------
$ (1)
------------
- --------------------------------------------------------------------------------
Total Acquisition Price $ ____________
Contingent Rent Payment $ ____________
- ----------
(1) Insert, for each Parcel, as applicable, either (A) amount of the initial
advance for purchase of Parcel if no Construction Advance has been made, or
(B) the aggregate of the original purchase advance for the Parcel and the amount
of any Interim Advance or other Constrution Advance for the Parcel that has
been funded.
<PAGE>
EXHIBIT "B"
Form of Parcel Addition Supplement
SUPPLEMENT TO MASTER LEASE
(_____________, ________) [Location of Parcel]
This Parcel Addition Supplement ("Supplement") is hereby added, as of
the _____ day of _________, _____, to that certain Master Lease (as heretofore
amended and supplemented, the "Lease"), dated as of _____________, 1997, by and
between STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as
Trustee under that certain Declaration of Trust of even date with the Lease (in
such capacity, and not individually, "Lessor"), and, among other Lessees therein
named, ________________________, a _________ corporation ("Lessee"). Upon
execution hereof by Lessor and Lessee, and approval hereof by CITICORP LEASING,
INC., a Delaware corporation (as administrative agent for the "Purchasers" [as
defined in the Lease]) ("Agent"), this Supplement shall be included in and shall
be a part of the Lease for all purposes. Terms used but not otherwise defined
herein shall have the meanings given to such terms in the Lease.
The parties hereto, intending to be legally bound hereby, acknowledge
and agree to the following:
Lessee is one of the parties to the Lease as a "Lessee" thereunder. [IF
LESSEE IS AN "ADDITIONAL LESSEE" REFERENCE SUPPLEMENT PURSUANT TO WHICH SUCH
ADDITIONAL LESSEE BECAME A PARTY TO THE LEASE.]
The parcel of land (the "Parcel") more fully described on Exhibit "A"
attached hereto and the improvements, if any, located thereon (the
"Improvements") are hereby added by this Supplement to this Lease and shall
hereafter constitute a part of the "Property" for all purposes of the Lease.
Lessor hereby leases the Parcel and Improvements to Lessee, and Lessee hereby
leases the Parcel and Improvements from Lessor pursuant to the Lease.
The "Permitted Encumbrances" with respect to the Parcel shall consist
of those items listed on Exhibit "B" attached hereto, which shall hereafter
constitute the "Permitted Encumbrances" applicable to the Parcel for all
purposes of the Lease.
Effective as of the date hereof, the Schedule of Acquisition Prices
attached as Schedule A-1 of the Lease is hereby replaced by the Revised Schedule
A-1 attached hereto, and all references to the "Acquisition Price" of all or any
Parcel(s) for any purpose shall be deemed to refer to the Acquisition Price(s)
referred to on such Revised Schedule A-1. [ATTACH REVISED SCHEDULE A-1] From and
after the date hereof the aggregate Acquisition Price under the Lease is
increased to $______________ [SHOULD MATCH NEW SCHEDULE A-1 TOTAL], which amount
shall be used for the computation of Net Rent under the Lease until further
adjusted.
<PAGE>
The Contingent Rent Payment shall be increased by $____________ [INSERT
AMOUNT EQUAL TO 84% OF THE ADVANCE FOR THE PARCEL] as a result of the addition
to the Lease of the Parcel and Improvements, resulting in a new Contingent Rent
Payment in the amount of $_____________ .
Lessee hereby confirms, as of the date hereof, that all representations
and warranties made in the Lease with respect to the Property heretofore covered
by the Lease remain true and correct in all material respects; that all
representations and warranties included in the Lease with respect to the
"Property" are, as of the date hereof, true and correct as to the Parcel and the
Improvements as if such Parcel and Improvements had been originally included
within the term "Property"; and that no Event of Default and, to the best of
Lessee's knowledge, no event which with notice and/or the passage of time might
ripen into an Event of Default exists under the Lease. Without limitation,
Lessee confirms that all representations and warranties set out in Section 6(d)
of the Lease are, as of the date hereof, true and correct as to the Parcel and
Improvements hereby added to the Property.
Lessee hereby acknowledges and confirms that as of the date hereof,
Lessee has no defense to the payment or performance of the Lessee's obligations
under the Lease and that, to the best of Lessee's knowledge, no claims,
counterclaims, affirmative defenses, or other such rights exist against Lessor,
Agent, or any Purchaser or Instrument Holders under the Lease.
Lessee acknowledges and confirms hereby that it has examined the Parcel
and the Improvements and title thereto, and that it accepts and approves the
Parcel and the Improvements and all matters relating thereto as suitable and
satisfactory for inclusion in the Lease [except that the improvements located on
the Parcel on the date hereof may be demolished, in whole or in part, as
provided below -- DELETE THIS PROVISION IF NOT APPLICABLE.
Lease Guarantor, as "Indemnitor" under that certain Environmental
Indemnity Agreement (the "Environmental Indemnity") of even date with the Lease,
executed by Lease Guarantor for the benefit of Lessor, Agent and the Instrument
Holders, hereby acknowledges that said Environmental Indemnity and each and
every representation, warranty, covenant, obligation, indemnity, or other term
thereof applies to, and applies with respect to, the Parcel and the Improvements
added to the Lease hereby and that from and after the date hereof such Parcel
and Improvements shall constitute part of the "Property" for all purposes of the
Environmental Indemnity.
Further, Lease Guarantor, as "Guarantor" under that certain Lease
Guarantee (the "Lease Guarantee") of even date with the Lease, executed by Lease
Guarantor and Lessor, hereby acknowledges that said Lease Guarantee and each and
every representation, warranty, covenant, obligation, indemnity, or other term
thereof applies to, and with respect to, the Parcel(s) and the Improvements
<PAGE>
added to the Lease hereby and that from and after the date hereof such Parcel(s)
and Improvements (including any Improvements hereafter constructed by Lessee on
the Parcel) shall be covered by the Lease Guarantee, and that the Lease
Guarantee remains in full force and effect and continues to apply to the Lease,
as supplemented hereby.
It is expressly acknowledged and agreed that Agent and the Purchasers
and Instrument Holders are intended to be beneficiaries of this Supplement to
the same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
[INSERT HERE ANY ADDITIONAL PROVISIONS APPLICABLE
TO THE NEW PROPERTY]
[The Improvements existing on the Parcel as of the date hereof are
approved for demolition pursuant to Section 1(f) of the Lease -- DELETE OR
MODIFY BASED ON FACTS AND UNDERWRITING.]
[INSERT ONLY IF APPLICABLE AND MODIFY TO REFLECT
APPLICABLE UNDERWRITING CRITERIA]
[The Parcel contains [describe excess land by legal description, size
and location, or other available information] (the "Excess Land") which is not
needed for Lessee's purposes. Lessee shall have the right to subdivide the
Excess Land from the remainder of the Parcel and dispose of the Excess Land,
subject to satisfaction of the following requirements:
(i) the Excess Land and the remainder of the Parcel must be
separately platted legal lots, have adequate legal and physical access
to publicly dedicated streets or rights of way, be separate tax
parcels, and (except pursuant to approved Facility Agreements)
otherwise not be dependent upon each other for any legal or functional
purpose whatsoever, and the disposition of the Excess Land must not
cause the remainder of the Parcel (including any Improvements thereon
or New Improvements contemplated to be developed thereon) to violate
any parking requirements, set-back lines, zoning requirements,
floor-area ratio requirements, or other legal or applicable private
restrictions, requirements or development standards.
(ii) the surveys, Title Policies, appraisals, and other
underwriting reports and materials provided to Agent in connection with
the addition of the Parcel to the Property must show (or be
supplemented, endorsed, and updated, as applicable, to show) the
remainder of the Parcel (exclusive of the Excess Land), and must
satisfy all underwriting requirements set out in the Transaction
Agreement such that the Parcel, without regard to the Excess Land,
would be eligible for inclusion as a part of the Property (with the
applicable Acquisition Price) if it did not already constitute a part
of the Property.
<PAGE>
(iii) any utility, access, or other rights across the Excess
Land necessary for the use and operation of the remainder of the Parcel
shall be documented into formal easements that are not subject or
subordinate to any mortgage or other lien affecting the Excess Land.
(iv) the remainder of the Parcel shall have a separate
approved site plan, final development plan, development plat,
infrastructure plan, or other applicable legal filings and approvals as
may be necessary in the applicable jurisdiction such that the Parcel
and Improvements thereon are entirely legally separate from any other
property (including, without limitation, being covered by separate
certificates of occupancy or local equivalent).
(v) all costs or expenses of Agent or Lessor in connection
with the release of the Excess Land shall be paid by Lessee.
If the Excess Land and the remainder of the Parcel satisfy the foregoing
requirements the Excess Land may be transferred to Lessee or its designee and
excluded from the coverage of this Lease without requirement for payment of any
Acquisition Price (but otherwise at the sole cost and expense of Lessee). In
such event the Agent shall also release the Transaction Mortgage from the Excess
Land. The release of the Excess Land shall not reduce the Acquisition Price for
the Parcel.]
EXECUTED as of the date first written above.
[SEE ATTACHED SIGNATURE PAGES]
<PAGE>
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
LESSOR:
-------
STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, not in its
individual capacity but solely as Trustee
under the Declaration of Trust
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
"LESSEE":
---------
[ONLY SPECIFIC LESSEE LEASING PARCEL NEED SIGN]
________________________________,
a _____________________ corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
The undersigned, in its capacity as Lessee Parent, Lease Guarantor, and
party to the Environmental Indemnity Agreement joins in this Supplement for the
purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
----------------------------------
THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
Approved and Accepted as of the date first above written.
AGENT:
------
CITICORP LEASING, INC., a Delaware
corporation (as administrative agent on
behalf of the Purchasers)
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
EXHIBIT "C"
Construction Addendum
If Lessee elects to construct New Improvements on any Parcel and
receive a Construction Advance in respect thereof the New Improvements in
question must be constructed on such Parcel in accordance with the requirements
of this Construction Addendum. Any such New Improvements constructed upon the
Property shall be the property of Lessor from the date such New Improvements (or
any portions thereof) are placed on the Property.
Section 1. Construction of New Improvements.
1.1 If Lessee desires to construct New Improvements on any
Parcel in respect of which Lessee intends to seek a Construction Advance upon
completion thereof, then prior to commencing construction of such New
Improvements Lessee shall notify Agent of its intention to construct such New
Improvements and its desire to receive a Construction Advance for the costs
thereof upon completion. Such notice shall include (i) a description of the
Parcel on which such construction is to occur, (ii) a general description of the
work to be performed (which, in the case of New Improvements that are
substantially consistent with a "prototype" store or service center previously
approved by Agent, may consist merely of an indication that the New Improvements
in question are to be of such prototype, and (iii) a good faith (but
non-binding) estimate of the amount of the Construction Advance Lessee expects
to seek upon completion of construction of the New Improvements.
1.2 Lessee shall enter into such contracts and agreements as
it shall deem necessary or appropriate in order to cause completion of the New
Improvements on the Parcel in question. Such contracts and agreements shall be
in Lessee's name only and the obligations to be performed by Lessee thereunder
shall be the sole responsibility of Lessee.
1.3 If requested by Agent, Lessee shall deliver to Agent (i)
copies of all contracts and agreements relating to construction of the New
Improvements, (ii) the plans and any related specifications, working drawings
and construction schedules for the New Improvements (the "Plans"), (iii) all
governmental permits and licenses relating to or necessary for completion of the
New Improvements, and (iv) any other Documents which Lessor or Agent may
reasonably require with respect thereto. Delivery of such materials shall not be
a condition precedent to the addition of the Parcel to the Property or the
commencement of construction of the New Improvements, but Agent shall have the
right to review such materials in connection with its approval of the
Construction Advance. Agent's review and approval of such materials shall be
from the perspective of permitting it to assure itself that any Construction
Advance is made with respect to New Improvements that are constructed in
accordance with applicable legal requirements and sound construction and
development practices. Agent's approval shall not be based upon cost, value, or
market analyses or similar matters (except to the extent that such matters
<PAGE>
influence the amount of the appraisal of the Parcel and New Improvements). If
Agent has previously been provided with Plans for a prototype of New
Improvements Agent shall not request Plans for specific New Improvements that
Lessee represents to Agent have been or are to be constructed substantially in
accordance with the prototype Plans. If Lessee makes any material change or
modification in any documents or materials delivered to Agent pursuant to this
Section 1.3 Lessee shall provide Agent with a copy of the modified version of
such documents or other materials.
1.4 Lessee shall effect or cause to be effected the completion
of the New Improvements in a good and workmanlike manner, free of any patent or
latent defects, in substantial accordance with the Plans, and in accordance with
all laws, rules, regulations and ordinances applicable thereto (including,
without limitation, all Environmental Laws). Any New Improvements shall be
completed on or before earlier of (i) August 31, 1998, or (ii) the first
anniversary of the date on which the Parcel in question was added to the
Property (as applicable, the "Required Completion Date").
1.5 Lessee shall be solely responsible for, and shall pay or
cause to be paid in a timely manner, all costs of completion of the New
Improvements, including, without limitation, (a) amounts paid or to be paid to
contractors and other persons for work and services actually performed
(including employees of Lessee) and fees of architects, engineers and other
consultants and professionals, (b) all premiums for builder's risk, public
liability, worker's compensation and other insurance premiums pursuant to
insurance policies required hereby or by the Lease, and (c) survey costs. Lessee
agrees to hold Lessor, Agent and each Instrument Holder harmless from the
payment of all costs of completion of the New Improvements. Lessee also agrees
to pay directly to the party to whom such amounts are owed within thirty (30)
days after demand all reasonable out-of-pocket costs, charges, reasonable fees
and expenses of the Lessor and its counsel and the Agent and its counsel,
related to the preparation, evaluation (including related diligence activities),
and execution of any supplements to the Lease in connection therewith.
1.6 During the period when any construction activities are
being carried out by Lessee with respect to any of the New Improvements, Lessee
shall cause to be carried and to be in full force and effect (either directly or
pursuant to the self-insurance program permitted under the Lease) (a)
non-reporting builder's risk or all-risk property insurance insuring the Parcel
and New Improvements in the amount of the full replacement value thereof (on an
"as-built" basis), (b) insurance covering all materials stored at the
construction site (or off the construction site) that are intended to be
incorporated into the New Improvements in an amount not less than the full
insurable value of such materials from time to time, and (c) such other
insurance coverage as Lessee may be required to carry under the Lease. All of
such insurance coverage shall be carried in accordance with all applicable
provisions of the Lease.
<PAGE>
1.7 Upon completion of the New Improvements for any Parcel,
and as a condition precedent to Lessee's right to receive a Construction Advance
in respect thereof, Lessee shall cause to be delivered to Agent (a) complete
as-built plans and specifications for the New Improvements (or, if the New
Improvements are constructed pursuant to prototype Plans previously provided to
Agent, a certification that the New Improvements have been so constructed), (b)
an "as-built" survey of the Parcel (in form reasonably satisfactory to Lessor
and Agent) updated to show the location of the New Improvements and all
easements or other Permitted Encumbrances affecting the Parcel, (c) copies of
books and records reflecting the cost of the New Improvements in such detail as
may be sufficient to enable Agent to substantiate the cost of the New
Improvements in question, (d) such lien waivers and contractor's affidavits as
may reasonably be required by Agent, (e) an endorsement to the mortgagee title
policy showing no exceptions for mechanic's and materialman's liens and
otherwise in form and substance reasonably satisfactory to Agent, and (f) such
other instruments, documents and/or materials which may be reasonably requested
by the Agent to evidence the completion of such New Improvements, the payment of
the costs thereof, and the satisfaction of the conditions to a Construction
Advance pursuant to the Transaction Agreement. The delivery of any such
materials or documents to Agent shall constitute a representation by Lessee to
Lessor and Agent that such materials are correct and complete in all material
respects.
1.8 Provided that all conditions have been timely satisfied by
Lessee, Agent will proceed to obtain the funding of the Construction Advance by
the Purchasers as provided in the Transaction Agreement.
Section 2. Funding of Construction Advance. Immediately upon receipt of
any funding of an Advance in respect of the New Improvements under the
Transaction Agreement, Lessor shall pay to Lessee, as a Construction Advance for
the New Improvements, the amount of such funding in consideration of the
performance by Lessee of its obligations hereunder. In connection with such
funding Lessee and Lessor shall execute such instruments or documents
(including, without limitation, a Construction Supplement) and do such things as
may be required to fulfill the provisions of the Lease relating to the
construction of the New Improvements and the provisions of the Transaction
Agreement relating to the funding of a Construction Advance thereunder.
Section 3. Construction Failure.
3.1 If the New Improvements on any Parcel are not completed
and/or the requirements hereof necessary to permit Lessee to obtain a final
Construction Advance under the Transaction Agreement in respect of such New
Improvements are not satisfied prior to the Required Completion Date for that
Parcel (a "Construction Failure"), then Lessee shall, at its option, either (i)
make an Offer to Purchase the Parcel with respect to which such Construction
Failure has occurred pursuant to Section 14 of the Lease, or (ii) elect to
terminate this Lease as to the Parcel with respect to which the Construction
Failure has occurred. If Lessee fails to elect option (ii) within fifteen (15)
days after the Construction Failure occurs then Lessee shall irrevocably be
deemed to have elected option (i). In either event neither Agent, the Instrument
Holders, nor Lessor shall have any further obligation (other than as provided in
Section 3.1.2 below) to Lessee for the cost of constructing the New
Improvements.
<PAGE>
3.1.1 If Lessee elects (or is deemed to have elected) to
purchase the Parcel with respect to which the Construction Failure has
occurred pursuant to option (i) above then the Offer Purchase Price for
such Parcel as provided in Section 15 of the Lease (which Offer
Purchase Price will include the Acquisition Price for the Parcel in
question, as such Acquisition Price shall theretofore have been
increased as a result of any construction allowance attributable to
such Parcel that may theretofore have been advanced) and the closing of
Lessee's purchase of such Parcel from Lessor shall otherwise be in
accordance with Section 15 of the Lease.
3.1.2 If Lessee elects to terminate this Lease as to an
affected Parcel pursuant to option (ii) above as a result of a
Construction Failure then Lessee shall, on the date that is fifteen
(15) days after such Construction Failure occurs, pay to Lessor a
special termination payment (the "Construction Failure Payment") in an
amount (not to exceed the Acquisition Price for the Parcel in question)
determined as follows:
3.1.2.1 First, the aggregate amount of costs and
expenses incurred and paid for by Lessee in connection with
the construction of the New Improvements on the Parcel in
question, as substantiated to Agent's reasonable satisfaction,
that have not previously been reimbursed to Lessee through an
Interim Advance or Construction Advance ("Unadvanced Costs")
shall be determined;
3.1.2.2 Second, Lessee shall apply for, and Lessor
shall make, an Interim Advance in respect of the Parcel in
question in an amount equal to the amount of the Unadvanced
Costs in respect of the Parcel in question, and the
Acquisition Price for the Parcel in question shall be
increased by the amount of such Interim Advance;
3.1.2.3 Third, multiply the Acquisition Price of the
Parcel in question, after giving effect to the Interim Advance
provided for in Section 3.1.2.2 above, by eighty-nine percent
(89%), and the product so determined shall be the required
"Construction Failure Payment."
The Construction Failure Payment shall be treated and disposed of by
Lessor in the same manner as a Contingent Rent Payment (notwithstanding
that the Construction Failure Payment is computed as a different
percentage of the Acquisition Price than is used to compute the regular
Contingent Rent Payment hereunder) for all purposes of this Lease and
the other Transaction Documents. For the convenience of the Purchasers
and the Agent, if desired, the amount of the final Interim Advance to
be made pursuant to Section 3.1.2.2 above may be "netted" against the
amount of the Construction Failure Payment and not actually advanced to
Lessee.
<PAGE>
3.2 If Lessee elects to terminate the Lease as to a Parcel
with respect to which a Construction Failure has occurred and has paid the
Construction Failure Payment in respect thereof, then Lessee, as agent for
Lessor but at Lessee's sole cost and expense, shall use its best efforts to sell
the Parcel in question to a third party at the maximum available market price
not later than the date that is thirty (30) days after the effective date of
such termination. Lessor shall join in any sale at or above the Special Minimum
Price (defined below) and Agent's approval of such sale will not be required;
however, Lessee may not sell the Parcel in question without the consent of
Agent, which consent may not be given without consent of the Majority Holders
and in any event may be withheld at Agent's sole and absolute discretion, if the
purchase price is less than that price that will produce net sale proceeds of
the Parcel received by Lessor upon any such sale (after applicable closing and
transaction costs) sufficient, together with the Construction Failure Payment
itself, to permit the Lessor (or Agent on behalf of Lessor) to pay to the
applicable Instrument Holders the amount that such Instrument Holders would have
received if, in lieu of terminating the Lease and making the Construction
Failure Payment, the Lessee had purchased the Parcel(s) in question and paid the
Offer Purchase Price therefor (computed after giving full effect to the Interim
Advance, if any, made pursuant to Section 3.1.2.2 above), taking into account
the additional interest or certificate yield, as applicable, accrued on the
Instruments in question with respect to the amount that would have been paid on
sale of the Property to Lessee at the Offer Purchase Price but which remained
unpaid on the date of such partial termination of the Lease as a result of the
Construction Failure Payment being less than the Acquisition Price of the
Parcel(s) in question (a sale price that will produce net sale proceeds, after
all transaction costs, in such amount being referred to as the "Special Minimum
Price"). To the extent the net sale proceeds exceed the Special Minimum Price
Lessor shall refund all such excess to Lessee. If Lessee has failed to cause the
Parcel to be sold within such period, Lessee's rights under this subsection 3.2
shall cease and Lessor shall thereafter have the sole and exclusive right to
sell or dispose of the Parcel in question solely for the account of the
Instrument Holders. Lessor shall reasonably cooperate in any sale of the Parcel
in question by Lessee (after approval of the sale by Agent, where required), but
at Lessee's sole cost and expense, such cooperation to include execution of
contracts of sale, closing documents, and related materials; provided that
Lessor shall not be required to incur any liability beyond its interest in the
Parcel in question in connection therewith.
Section 4. Representations and Warranties of Lessee. Lessee represents
and warrants to Lessor with respect to each Parcel and the New Improvements
thereon, as of the date of funding of the Construction Advance as follows:
4.1 No violation of any Laws exists with respect to the Parcel
and New Improvements. The intended use and operation of the Parcel and New
Improvements complies with all Legal Requirements, including, without
limitation, building codes, zoning, and private covenants.
<PAGE>
4.2 All streets, easements, utilities and related services
necessary for the construction of the New Improvements and the operation and use
thereof for its intended purposes are available, dedicated, and fully
operational to the boundaries of the Parcel, including, without limitation,
reciprocal use easements, potable water, electric, gas and telephone facilities,
garbage removal, and sewer services.
4.3 The Plans are adequate for construction of the New
Improvements, comply with all applicable Laws, building codes, covenants,
conditions, or restrictions applicable to the Parcel and New Improvements, and
were prepared in accordance with good commercial construction practices, and the
New Improvements have been constructed in substantial accordance with the Plans.
4.4 Lessee has obtained or caused to be obtained all requisite
building permits, licenses and approvals required by any governmental authority
with respect to construction of the New Improvements.
To the extent any of the foregoing representations is
inaccurate in any respect with regard to a specific Parcel at the time a
Construction Advance is requested for such Parcel, Lessee shall set forth the
accurate representation in writing, together with the status of such matters and
the protections to be afforded to Lessor, Agent and the Instrument Holders and,
so long as the effect of the facts as they exist, giving effect to such
protections as are provided to address such matters, do not reduce the value of
the Parcel and New Improvements relative to the value set out in the appraisal
received by Agent, and Agent is otherwise satisfied that neither Lessor, Agent,
nor any Instrument Holder is materially adversely affected by the existing facts
and conditions, such variance shall not delay, condition or serve as the basis
for a refusal of the Construction Advance requested by Lessee.
Section 5. Nature of Relationship.Nothing contained herein shall create
the relationship of partnership or of joint venture or of any association
between Lessor and Lessee.
<PAGE>
EXHIBIT "D"
Form of Construction Supplement for Completed Improvements
CONSTRUCTION SUPPLEMENT TO MASTER LEASE
(_____________________, ___________) [Project Location]
This Construction Supplement ("Supplement") is hereby added, as of the
_____ day of _________, _____, to that certain Master Lease (as heretofore
amended or supplemented, the "Lease"), dated as of __________, 1997, by and
between STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, in
its capacity as Trustee under that certain Declaration of Trust dated of even
date with the Lease (in such capacity, and not individually, "Lessor"), and
among other Lessees therein named, ____________________________, a
________________ corporation ("Lessee"). Upon execution hereof by Lessor and
Lessee, and approval hereof by CITICORP LEASING, INC., a Delaware corporation
(as administrative agent for the Purchasers [as defined in the Lease])
("Agent"), this Supplement shall be included in and shall be a part of the Lease
for all purposes. Terms used but not otherwise defined herein shall have the
meanings given to such terms in the Lease.
The parties hereto, intending to be legally bound hereby, acknowledge
and agree to the following:
Lessee is one of the parties to the Lease as a "Lessee"
thereunder. [IF LESSEE IS AN "ADDITIONAL LESSEE" REFERENCE SUPPLEMENT PURSUANT
TO WHICH SUCH ADDITIONAL LESSEE BECAME A PARTY TO THE LEASE.]
The parcel of land (the "Parcel") more fully described on Exhibit "A"
attached hereto was added to the Lease by Parcel Addition Supplement dated
______________, and constitutes a part of the "Property" for all purposes of the
Lease. Lessee has elected to construct "New Improvements" (as defined in the
Lease) on the Parcel pursuant to Section 1(d) of the Lease and the Construction
Addendum attached thereto.
Lessee hereby represents and warrants to Lessor, Agent, and each
Purchaser and Instrument Holder that the construction of the New Improvements on
the Parcel has been completed in accordance with the terms and conditions of the
Construction Addendum. Based on such representation and warranty, Lessor and
Lessee desire to increase the Acquisition Price for the Parcel by the amount of
$__________, which amount is being simultaneously herewith advanced to Lessee by
Lessor as a Construction Advance in respect of the New Improvements.
<PAGE>
Effective as of the date hereof, the Schedule of Acquisition Prices
attached as Schedule A-1 of the Lease is hereby replaced by the Revised Schedule
A-1 attached hereto, and all references to the "Acquisition Price" of all or any
Parcel(s) for any purpose shall be deemed to refer to the Acquisition Price(s)
referred to on such Revised Schedule A-1. [ATTACH REVISED SCHEDULE A-1]
The Contingent Rent Payment is hereby increased by $____________
[insert amount equal to 84% of the Construction Advance], resulting in a
Contingent Rent Payment in the amount of $_____________.
Lessee hereby confirms, as of the date hereof, that all representations
and warranties made in the Lease with respect to the Property heretofore covered
by the Lease remain true and correct in all material respects; that all
representations and warranties included in the Lease with respect to the
"Property" are, as of the date hereof, true and correct as to the Parcel and the
New Improvements; and that no Event of Default and, to the best of Lessee's
knowledge, no event which with notice and/or the passage of time might ripen
into an Event of Default, exists under the Lease.
Lessee hereby acknowledges and confirms that as of the date hereof,
Lessee has no defenses to the payment or performance of the Lessee's obligations
under the Lease and that, to the best of Lessee's knowledge, no claims,
counterclaims, affirmative defenses, or other such rights exist against Lessor,
Agent or any Purchaser or Instrument Holder under the Lease.
It is expressly acknowledged and agreed that Agent and the Purchasers
and Instrument Holders are intended to be beneficiaries of this Supplement to
the same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
Lease Guarantor joins in the execution hereof for the purpose of
acknowledging the Construction Advance being made and the adjustments to the Net
Rent and Contingent Rent Payment to be affected thereby. Lease Guarantor
confirms that the Lease Guarantee dated as of even date with the Lease, executed
by Lease Guarantor remains in full force and effect and continues to apply to
the Lease, as supplemented hereby.
EXECUTED as of the date first written above.
[SEE ATTACHED SIGNATURE PAGES]
<PAGE>
SIGNATURE PAGE ATTACHED TO CONSTRUCTION SUPPLEMENT
LESSOR:
-------
STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, not in its
individual capacity but solely as Trustee
under the Declaration of Trust
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO CONSTRUCTION SUPPLEMENT
"LESSEE":
---------
[ONLY SPECIFIC LESSEE LEASING PARCEL NEED SIGN]
__________________________________,
a _____________________corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
The undersigned, in its capacity as Lessee Parent, Lease Guarantor, and
party to the Environmental Indemnity Agreement joins in this Supplement for the
purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO CONSTRUCTION SUPPLEMENT
Approved and Accepted as of the date first above written.
AGENT:
------
CITICORP LEASING, INC., a Delaware
corporation (as administrative agent for
itself and the Purchasers)
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
EXHIBIT "E"
Form of Supplement for Interim Advance
INTERIM SUPPLEMENT TO MASTER LEASE
This Interim Supplement ("Supplement") is hereby added, as of the ____
day of _____________, 199__, to that certain Master Lease (as amended,
supplemented or otherwise modified from time to time, the "Lease"), dated as of
__________, 1997, by and between STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, as Trustee under that certain Declaration of Trust
of even date with the Lease (in such capacity, and not individually, "Lessor"),
and among other lessees named therein, [NAME OF APPLICABLE LESSEE] , a
_____________ corporation ("Lessee"). Upon execution hereof by Lessor and Lessee
and approval hereof by CITICORP LEASING, INC., a Delaware corporation (as
administrative agent for the "Purchasers" [as defined in the Lease]) ("Agent"),
this Supplement shall be included in and shall be a part of the Lease for all
purposes. Terms used but not otherwise defined herein shall have the meanings
given to such terms in the Lease.
The parties hereto, intending to be legally bound hereby, acknowledge
and agree to the following:
Lessee hereby represents and warrants to Lessor and Lender that New
Improvements (as defined in the Lease), have been partially constructed (but are
not yet completed), in accordance with the terms and conditions of the
Construction Addendum, upon the Parcel located in ______________, more
particularly described on Exhibit "A" attached hereto (the "_______ Parcel"),
and the New Improvements, or the portion thereof so completed, constitute a part
of the "Property" for all purposes of the Lease. Based on such representation
and warranty and in consideration of the advance by Lessor of even date herewith
of a reimbursement for construction costs incurred to date, Lessor and Lessee
desire to increase the Acquisition Price for the _________ Parcel by the amount
of $___________ [IF MORE THAN ONE PARCEL INVOLVED-ALLOCATE AMONG APPLICABLE
PARCELS]. The aggregate amount to date that has been paid to Lessee in
reimbursement for the costs of constructing the New Improvements on the
__________ Parcel is $_______________. [MODIFY AS APPROPRIATE IF MORE THAN ONE
PARCEL INVOLVED-FULL AMOUNT MUST BE ALLOCATED AMONG PARCELS]
Effective as of the date hereof, the Schedule of Acquisition Prices
attached as Schedule A-1 of the Lease is hereby replaced by the Revised Schedule
A-1 attached hereto, and all references to the "Acquisition Price" of all or any
Parcel(s) for any purpose shall be deemed to refer to the Acquisition Price(s)
referred to on such Revised Schedule A-1. [ATTACH REVISED SCHEDULE
<PAGE>
A-1--ACQUISITION PRICE OF EACH AFFECTED PARCEL TO BE INCREASED BY THE PORTION
OF THE INTERIM ADVANCE ALLOCABLE TO SUCH PARCEL--AGGREGATE ACQUISITION PRICE
MUST BE INCREASED BY TOTAL AMOUNT OF INTERIM ADVANCE AND SHOULD EQUAL AMOUNT OF
AGGREGATE ADVANCES TO DATE (LESS PURCHASE PRICE OF PARCELS REPURCHASED, IF
APPLICABLE)]
Lessor and Lessee hereby confirm, as of the date hereof, that all
representations and warranties made in the Lease with respect to the Property
remain true and correct in all material respects; and that to the best of
Lessee's knowledge no Event of Default or event which with notice and/or the
passage of time might ripen into a Event of Default exists under the Lease.
Lessee hereby acknowledges and confirms that as of the date hereof,
Lessee has no defense to the payment or performance of the Lessee's obligations
under the Lease and that, to the best of Lessee's knowledge, no claims,
counterclaims, affirmative defenses, or other such rights exist against Lessor,
Agent, or any Purchaser or Instrument Holders under the Lease.
It is expressly acknowledged and agreed that Agent and the Purchasers
and Instrument Holders are intended to be beneficiaries of this Supplement to
the same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
EXECUTED as of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
<PAGE>
SIGNATURE PAGE ATTACHED TO
INTERIM SUPPLEMENT TO MASTER LEASE
LESSOR:
-------
STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, not in its
individual capacity but solely as Trustee
under the Declaration of Trust
By: _____________________________________
Donald E. Smith, Vice President
<PAGE>
SIGNATURE PAGE ATTACHED TO
INTERIM SUPPLEMENT TO MASTER LEASE
LESSEE:
-------
____[MAY BE MULTIPLE LESSEES]_____
By: _____________________________________
Name: ___________________________________
Title: __________________________________
The undersigned, in its capacity as Lessee Parent, Lease Guarantor, and
party to the Environmental Indemnity Agreement joins in this Supplement for the
purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
----------------------------------
THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO
INTERIM SUPPLEMENT TO MASTER LEASE
Approved and Accepted as of the date first above written.
AGENT:
------
CITICORP LEASING, INC., a Delaware
corporation (as administrative agent on
behalf of the Purchasers)
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
EXHIBIT "F"
Form of SNDA
<PAGE>
EXHIBIT "G"
Form of Supplement for Additional Lessee
SUPPLEMENT NO. _____ TO MASTER LEASE
This Supplement ("Supplement") is hereby added, as of the _____ day of
_________, _____, to that certain Master Lease (as heretofore amended and
supplemented, the "Lease"), dated as of _____________, 1995, by and between
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as Trustee
under that certain Declaration of Trust of even date with the Lease (in such
capacity, and not individually, "Lessor"), and THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation, THE PEP BOYS MANNY, MOE & JACK OF CALIFORNIA, a
California corporation, and PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., a
Delaware corporation ("Lessee"). Upon execution hereof by Lessor, Lessee Parent,
and Additional Lessee, and approval hereof by CITICORP LEASING, INC., a Delaware
corporation (as administrative agent for the "Purchasers" [as defined in the
Lease]) ("Agent"), this Supplement shall be included in and shall be a part of
the Lease for all purposes. Terms used but not otherwise defined herein shall
have the meanings given to such terms in the Lease.
The parties hereto, intending to be legally bound hereby, acknowledge
and agree to the following:
___________________________, a _________ corporation ("Additional
Lessee") and Lessee Parent desire for the Additional Lessee to become a party to
the Lease as a Lessee as provided for in Section 31 of the Lease.
To induce approval of the acceptance of Additional Lessee as a party to
the Lease Lessee Parent and Additional Lessee hereby represent and warrant to
Agent and Lessor that, as of the date hereof:
(a) Additional Lessee is a wholly-owned Subsidiary of
Lessee Parent.
(b) All representations and warranties made in the Lease with
respect to the "Lessee" are true and correct in all material respects
as to the Additional Lessee as of the date hereof.
(c) Giving effect to the approval of Additional Lessee as a
party to the Lease, all representations and warranties made in the
Lease and in the Lease Guarantee as to Lessee Parent remain true and
correct in all material respects.
Lease Guarantor, as "Indemnitor" under that certain Environmental
Indemnity Agreement (the "Environmental Indemnity") of even date with the Lease,
executed by Lease Guarantor for the benefit of Lessor, Agent and the Instrument
Holders, hereby acknowledges that said Environmental Indemnity and each and
<PAGE>
every representation, warranty, covenant, obligation, indemnity, or other term
thereof applies to, and applies with respect to, the Additional Lessee and any
Parcel and the Improvements that may ever be leased by the Additional Lessee
pursuant to the Lease.
Further, Lease Guarantor, as "Guarantor" under that certain Lease
Guarantee (the "Lease Guarantee") of even date with the Lease, executed by Lease
Guarantor and Lessor, hereby acknowledges that said Lease Guarantee and each and
every representation, warranty, covenant, obligation, indemnity, or other term
thereof applies to, and with respect to, the Additional Lessee and any Parcel(s)
and the Improvements that may ever be leased by the Additional Lessee pursuant
to the Lease and that from and after the date hereof the Additional Lessee shall
be covered by the Lease Guarantee as if the Additional Lessee had been an
original Lessee, and that the Lease Guarantee remains in full force and effect.
Additional Lessee hereby assumes, jointly and severally, all
obligations of the Lessee under the Lease, whether arising prior to, or
subsequent to, the date of this Supplement.
It is expressly acknowledged and agreed that Agent and the Purchasers
and Instrument Holders are intended to be beneficiaries of this Supplement to
the same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
EXECUTED as of the date first written above.
[SEE ATTACHED SIGNATURE PAGES]
<PAGE>
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
LESSOR:
-------
STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, not in its
individual capacity but solely as Trustee
under the Declaration of Trust
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
"ADDITIONAL LESSEE":
--------------------
__________________________________,
a _____________________corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
The undersigned, in its capacity as Lessee Parent, Lease Guarantor, and
party to the Environmental Indemnity Agreement joins in this Supplement for the
purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
----------------------------------
THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
Approved and Accepted as of the date first above written.
AGENT:
------
CITICORP LEASING, INC., a Delaware
corporation (as administrative agent on
behalf of the Purchasers)
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
FIRST AMENDMENT TO MASTER LEASE
(Pep Boys II Transaction)
This FIRST AMENDMENT TO MASTER LEASE dated as of July 31, 1997 (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 (the "Master Lease") relating to certain real property to be leased
from time to time by Lessor to Lessee. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Master
Lease.
The Master Lease was executed in furtherance of certain transactions
contemplated by a Transaction Agreement of even date therewith among Lessor,
Lessee Parent, Citicorp Leasing, Inc. (in various capacities), and Bank of
Montreal. Of even date herewith the Transaction Agreement has been amended and
such amendment requires a corresponding amendment to the Master Lease to fully
effect the intents and purposes of the parties.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, the parties hereto have agreed to amend, and do
hereby amend, the Master Lease in the following respects.
AGREEMENTS
1. Section 12 (b) of the Lease is hereby amended to read, in its
entirety, as follows:
"(b) Condemnation with Termination. (i) If a Condemnation
shall in the good faith opinion of an authorized officer of Lessee
affect the Improvements on a given Parcel in such manner as to render
it unsuitable for restoration or for continued use and occupancy by the
Lessee, then the Lessee may deliver, not later than sixty (60) days
after such occurrence, or (ii) if a Condemnation shall affect the
entirety of a Parcel and the Improvements thereon, then the Lessee
shall be deemed to have delivered as of such occurrence, to the Lessor
a written notice (herein called a "Termination Notice") containing (A)
<PAGE>
notice of the Lessee's intention to terminate this Lease with respect
to the affected Parcel and the Improvements thereon, and (B) a
certificate of an officer of the Lessee describing the Condemnation
giving rise to such termination and certifying as to clause (i) or (ii)
above, as appropriate. In such event this Lease shall remain in full
force and effect as to the Parcels (and the Improvements thereon) not
affected by the Condemnation in question, and as to the affected Parcel
and Improvements the Lessee shall receive the remainder of the Parcel
and Improvements in question, if any, as well as the Net Proceeds
attributable thereto upon payment of the Offer Purchase Price as
provided for in Section 15 below. No Early Termination Fee shall be
payable in the event of a termination occurring under this Section
12(b)."
2. A new subsection 19(a)(xv) is hereby inserted in the Lease to read,
in its entirety, as follows:
"(xv) If the Lease Guarantee or the Environmental Indemnity
shall for any reason cease to be, or be asserted by the Lease Guarantor
or any Indemnitor, as applicable, not to be, a legal, valid and binding
obligation of the Lease Guarantor or such Indemnitor, enforceable in
accordance with their respective terms, or the Lease Guarantor or any
Indemnitor, as applicable, shall disaffirm or seek to disaffirm its
obligations thereunder."
3. A new Section 36 is hereby added to the Lease, to read in its
entirety as follows:
"36. Joint and Several Liability. The Lessee Parent, Pep
Boys-California, and Pep Boys-Delaware hereby confirm that their
liability and obligations under this Lease are joint and several."
4. A new Section 37 is hereby added to the Lease, to read in its
entirety, as follows:
"37. Consent to Jurisdiction. Each of the Lessee Parent, Pep
Boys-California, Pep Boys-Delaware, and any Additional Lessees that
hereafter become parties hereto hereby consent to jurisdiction in the
Commonwealth of Pennsylvania for all purposes of the Lease and/or any
other Transaction Documents, and acknowledge and agree that the
applicable state or federal courts operating in Philadelphia,
Pennsylvania, constitute a proper venue for any actions arising out of
or relating to the Lease or the other Transaction Documents. Lessee
Parent, Pep Boys-California and Pep Boys-Delaware acknowledge that
service of process in the Commonwealth of Pennsylvania may be served on
any or all of them by delivery of service to Lessee Parent."
<PAGE>
5. Paragraph B on Exhibit "A" of the Lease (captioned, "Additional
Rent") is hereby amended by the insertion of the word "Taxes", after the words
"Reserve Costs," and prior to the word "Increased Costs" on the third line of
the section.
6. The forms of Parcel Addition Supplement (Exhibit B), Construction
Supplement (Exhibit D) and Interim Advance Supplement (Exhibit E) attached to
the Lease are hereby replaced, in their entirety, by the forms attached hereto
as Schedules 1, 2, and 3, respectively.
7. Except as amended hereby, the terms and provisions of the Lease
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, intending to be legally bound hereby, the parties
hereto have caused this Amendment to be duly executed on the attached Signature
Pages by their respective officers thereunto duly authorized, to be effective as
of the day and year first above written.
[SEE ATTACHED SIGNATURE PAGES]
<PAGE>
SIGNATURE PAGE ATTACHED TO FIRST AMENDMENT TO MASTER LEASE
Between
State Street Bank and Trust Company, Trustee, as Lessor
and
The Pep Boys - Manny, Moe & Jack, et al., as Lessee
LESSOR:
-------
STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, not in its
individual capacity but solely as Trustee
under the Declaration of Trust
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SIGNATURE PAGE ATTACHED TO FIRST AMENDMENT TO MASTER LEASE
Between
State Street Bank and Trust Company, Trustee, as Lessor
and
The Pep Boys - Manny, Moe & Jack, et al., as Lessee
LESSEE:
-------
THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
THE PEP BOYS MANNY MOE & JACK, OF
CALIFORNIA, a California corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
PEP BOYS - MANNY, MOE & JACK OF DELAWARE,
INC., a Delaware corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
Exhibit 10.26
TRANSACTION AGREEMENT
(1997 Pep Boys II Leased Property)
This TRANSACTION AGREEMENT dated as of February 28, 1997 (the
"Agreement"), is entered into by and among THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation ("Lessee"); STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, not in its individual capacity except as expressly
stated herein, but solely as Trustee under the Declaration of Trust, as
hereinafter defined (State Street Bank and Trust Company, when acting in its
respective capacities as such Trustee, together with any successor trustee under
the Declaration of Trust, is herein referred to as the "Trustee" and State
Street Bank and Trust Company, when acting in its individual capacity, is herein
referred to as "Trust Company"); BANK OF MONTREAL ("Bank of Montreal") as an
initial "Purchaser" and "Instrument Holder; CITICORP LEASING, INC., a Delaware
corporation ("CLI"), on behalf of itself as an initial "Purchaser" and
"Instrument Holder" hereunder and on behalf of the other financial institutions
that may, from time to time, become "Purchasers" or "Instrument Holders"
hereunder; and CITICORP LEASING, INC., a Delaware corporation ("Agent"), in its
capacity as the initial administrative agent for the Instrument Holders
hereunder. Capitalized terms used but not otherwise defined in this Agreement
shall have the meanings set forth in Schedule 1 hereto.
Preliminary Statement
---------------------
A. From time to time Trustee will acquire certain parcels of real
property (each such parcel, together with all agreements, easements, licenses,
rights of way or use, appurtenances, tenements, hereditaments and other rights
and benefits now or hereafter belonging to or pertaining to such parcel or the
improvements thereon, being referred to as a "Parcel").
B. Each Parcel and any improvements located or constructed thereon (the
"Improvements") will be leased to Lessee (and, where applicable, certain
Additional Lessees that are wholly-owned subsidiaries of Lessee) by Trustee
under that certain Master Lease (the "Lease") of even date herewith between
Trustee, as lessor, and Lessee, as lessee. All Parcels that, as of any relevant
time, have been included in the coverage of the Lease by supplements as provided
for therein, and all Improvements located on such Parcels from time to time, are
sometimes herein collectively called the "Property." It is acknowledged that
while various subsidiaries of Lessee may, under the terms of the Lease, become
"Additional Lessees" from time to time, references in this Agreement to "Lessee"
are intended to refer only to THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania
corporation.
<PAGE>
C. To finance its acquisition of the Property, the Trustee shall issue
to CLI and Bank of Montreal, as the initial Purchasers of the Instruments, (i)
Series A Trust Notes (collectively, the "Original A-Notes") in the aggregate
stated principal amount of up to $37,800,000.00 (such amount being referred to
as the "A-Note Commitment"), (ii) Series B Trust Notes (collectively, the
"Original B-Notes") in the aggregate stated principal amount of up to
$5,400,000.00 (such amount being referred to as the "B-Note Commitment"), and
(iii) Series C Certificates (collectively, the "Original Certificates") in the
aggregate stated amount of up to $1,800,000.00 (such amount being referred to as
the "Certificate Commitment"). The Original A-Notes, and any other Series A
promissory notes issued from time to time pursuant to the terms hereof and of
the Declaration of Trust, are collectively referred to as the "A-Notes"; the
Original B-Notes, and any other Series B promissory notes issued from time to
time pursuant to the terms hereof and of the Declaration of Trust are
collectively referred to as the "B-Notes." The Original Certificates and any
other Series C certificates issued from time to time pursuant to the terms
hereof and of the Declaration of Trust are collectively referred to as the
"Certificates." The A-Notes and the B-Notes are herein collectively referred to
as the "Notes." The Notes and the Certificates are herein referred to
collectively as the "Instruments."
D. The Instruments shall be issued, be dated, mature and be payable as
provided in this Agreement and in the Declaration of Trust and shall be entitled
to the benefit of the Trust Estate held by Trustee pursuant to the Declaration
of Trust. A copy of the Declaration of Trust has been provided to Lessee, Agent
and Purchasers.
NOW, THEREFORE, in consideration of the agreements herein and in the
other Transaction Documents and in reliance upon the representations and
warranties set forth herein and therein, the parties agree as follows:
ARTICLE I.
FUNDING
-------
Section 1.01. Advances under Instruments.
---------------------------
(a) CLI, as an initial Purchaser of the Instruments, confirms
that its Certificate Commitment is $1,800,000.00, its A-Note Commitment is
$18,112,500.00, and its B-Note Commitment is $2,587,500.00, for a total
Commitment of $22,500,000.00. Notwithstanding the foregoing, it is expressly
agreed that in no event will CLI ever be obligated to make an Advance in respect
of its Commitment if, at the time of the Advance and after giving effect to the
Advance in question, the "Hold Position" of CLI (i) for Advances made during the
period ending March 31, 1997, would exceed $38,500,000.00, (ii) for Advances
made during the period April 1, 1997, through June 30, 1997, would exceed
$30,000,000.00, (iii) for Advances made during the period July 1, 1997, through
September 30, 1997, would exceed $25,000,000.00, and (iv) for Advances made on
or after October 1, 1997, would exceed $15,000,000.00. For purposes hereof the
term "Hold Position" means the sum of (i) the aggregate outstanding principal
balance and/or stated amounts of Instruments then held by CLI hereunder, plus
(ii) the aggregate outstanding principal and/or stated amount of notes or equity
2
<PAGE>
certificates then held by CLI in respect of the Pep Boys I Facility, plus (iii)
the remaining amount of available advances that Lessee may request under the Pep
Boys I Facility; provided, however, that there shall be excluded from such
calculation any portion of the principal balance and/or stated amount, as
applicable, of any such instruments (whether hereunder or in respect of the Pep
Boys I Facility) that are held by CLI for the benefit of an unaffiliated
participant or assignee that has closed on or purchased such participation. It
is acknowledged that CLI's "Hold Position" with respect to the Pep Boys I
Facility as of the date hereof is $15,920,000.00, such that the maximum amount
of Advances currently available under the CLI Commitment is $22,500,000.00.
(b) Bank of Montreal, as an initial Purchaser of the
Instruments, confirms that its Certificate Commitment is zero ($0.00), its
A-Note Commitment is $19,687,500.00, and its B-Note Commitment is $2,812,500.00,
for a total commitment of $22,500,000.00.
(c) Advances under the Instruments representing the Commitment
shall be made by the Purchasers at the request of the Lessee, in one or more
installments (each an "Advance" and collectively "Advances") subject to
satisfaction or waiver of all conditions and requirements with respect thereto
set forth herein. The Purchasers shall fund each Advance by advancing funds
under A-Notes in the aggregate amount of 84% of such Advance, B-Notes in the
amount of 12% of such Advance, and Certificates in the amount of 4% of such
Advance. Each Purchaser shall fund its pro rata share of each Advance by
depositing with the Agent funds in an amount equal to such Purchaser's
Percentage of the portion of such Advances to be made by Purchasers in respect
of A-Notes, B-Notes or Certificates, as the case may be. All such Advances shall
be funded by the Purchasers by transfers of immediately available funds received
prior to 11:00 a.m. (New York, New York time) in an account of the Trustee to be
established and maintained at Citibank, N.A., New York, New York (Account No.
40685147 - ABA No. 021000089), or to such other Person or account as Trustee may
direct.
(d) The proceeds of each Advance(s) shall be used by Trustee
to purchase Parcels and Improvements, if any, thereon, to make Construction
Advances (as hereinafter defined) to Lessee under the Lease in respect of New
Improvements, to make Interim Advances (as hereinafter defined) to Lessee under
the Lease in respect of New Improvements then under construction in certain
circumstances as more fully described in Section 1.04(c) below, and for other
Approved Purposes. Upon the execution by Trustee and Lessee, and the approval
thereof by Agent, on behalf of Purchasers, of a supplement to the Lease adding a
Parcel to the Lease, and the execution and delivery of such other documents in
connection therewith as Agent, on behalf of Purchasers, may reasonably deem
appropriate consistent with Section 1.04 below, such Parcel and Improvements
shall thereafter be a part of the "Property" covered by this Agreement and the
Transaction Documents. In the case of Advances made to permit Trustee to
reimburse Lessee for the costs of New Improvements located on Parcels already
included in the Property (each, a "Construction Advance" and collectively,
"Construction Advances"), Lessee and Trustee shall execute, and Agent, on behalf
3
<PAGE>
of the Purchasers, shall approve, a Construction Supplement to the Lease in
substantially the form attached to the Lease (each, a "Construction Supplement"
and collectively, "Construction Supplements").
(e) From time to time other banks or financial institutions
satisfactory to Lessee, Trustee, Agent, and CLI may become additional
"Purchasers" for purposes of this Agreement. Approval of any proposed Purchaser
by any party hereto shall not be unreasonably withheld. In such event such new
Purchaser shall execute such supplements or amendments to this Agreement and/or
the other Transaction Documents as the other parties hereto may deem appropriate
to evidence, among other matters (i) the amount of the Commitment of such new
Purchaser with respect to Instruments, (ii) whether the Commitment of the new
Purchaser represents an increase of the overall Commitment of the Purchasers
hereunder or a reduction of the Commitment of CLI hereunder, and (iii) the
assumption by such new Purchaser of the obligations of a "Purchaser" hereunder.
At the time any Person becomes a Purchaser Instruments reflecting the Commitment
of such Purchaser will be issued to such Purchaser and, if the unadvanced
Commitment of any existing Purchaser is reduced as a result thereof, the
Instruments then held by the existing Purchasers shall be replaced by a
replacement Instrument of the same series issued by Trustee in the reduced
amount. It is expressly agreed that no Person may become a Purchaser hereunder
without the prior written consent of Lessee and Agent. It is further
acknowledged and agreed that any Person that becomes an Instrument Holder as a
result of an assignment thereto of Instruments previously issued to a Purchaser
hereunder shall not thereby become a "Purchaser". An Instrument Holder that is
not also a Purchaser shall have no obligation to fund Advances under the
Instruments and no right to approve Advances, which shall be approved by Agent
acting solely on behalf of Purchasers, subject to the terms and conditions
hereof.
(f) Agent shall keep current a Master Schedule reflecting the
amount of the Commitment of each Purchaser, the amount of Advances made in
respect of the outstanding Instruments, any payments made under or with respect
to the Instruments that reduce the outstanding balance thereof, and the amount
of the unfunded Commitment of each Purchaser. Upon request, the Agent will
provide a copy of the then current Master Schedule to any Purchaser, Instrument
Holder, the Trustee, or the Lessee. Such Master Schedule maintained by Agent
shall be conclusive and binding on the Purchasers, Instrument Holders, and the
Trustee in the absence of manifest error. The information reflected on the
Master Schedule shall have no effect upon the amounts payable by the Lessee
under the Lease, all of which payment obligations shall be governed by the Lease
itself.
Section 1.02. Closing Date. The closing of first Advance shall take
place on such date (the "Closing Date") as the Lessee may request, subject to
Lessee's timely satisfaction of all conditions set forth in Section 1.03, as
well as the applicable portions of Section 1.04.
4
<PAGE>
Section 1.03. Conditions for Initial Advance. In addition to
satisfaction of the requirements of Section 1.04 below (which are applicable to
all Advances), the initial Advance shall not be made hereunder until all of the
following requirements have been satisfied.
(a) This Agreement, the Declaration of Trust, the Lease, the
Lease Guarantee, and the Environmental Indemnity have each been fully executed
and delivered by each of the parties thereto.
(b) Trustee, Purchasers, and Lessee have each received such
evidence of authority to act, legal opinions, and related matters as they may
deem reasonably necessary to confirm that all parties to the Transaction
Documents are bound thereby and such Transaction Documents are binding and
enforceable upon all parties thereto.
(c) All fees, costs, and expenses to be paid or reimbursed by
Lessee to the Trustee or Purchasers and/or their respective counsel and/or
consultants through the Closing Date as otherwise provided herein, or in the
other Transaction Documents, have been paid in full.
Section 1.04. Conditions Precedent to All Advances. In addition to the
requirements of Section 1.03 above, Purchasers will have no obligation to make
Advances hereunder (including, without limitation, the initial Advance) unless,
at the time such Advance is requested, each of the following conditions
precedent has been satisfied. At such time as the applicable conditions have
been satisfied, Purchasers shall make the requested Advance:
(a) If the Advance in question is in connection with the
addition of an unimproved Parcel (or a Parcel as to which any existing
Improvements are intended to be demolished in connection with the construction
of New Improvements) to the Property:
(i) Trustee has executed and delivered, and
arrangements reasonably satisfactory to the Agent have been made for
the recordation of, a Transaction Mortgage covering the Parcel in
question.
(ii) Title Company shall have issued (or provided
Agent with evidence satisfactory to Agent that the Title Company is
irrevocably obligated to issue immediately after closing) the Owner's
Title Policy to Trustee and the Mortgagee Title Policy to the Agent
with respect to the Parcel(s) being added to the Property.
(iii) Agent has received original, fully-executed,
counterparts of a Supplement to the Lease adding the Parcel in question
to the "Property" covered by the Lease.
5
<PAGE>
(iv) A memorandum of the Lease has been executed and
delivered by Trustee and Lessee and, except in those circumstances
where no memorandum of lease is to be recorded as provided for in the
Lease, such memorandum of the Lease has been recorded (or arrangements
reasonably satisfactory to the Agent have been made for the
recordation) in all applicable jurisdictions to provide public record
notice of the existence of the Lease.
(v) Agent and Trustee have received such legal
opinions as they may reasonably require regarding the documentation
executed to add the Parcel in question to the Property, including,
without limitation, favorable opinions of local counsel satisfactory to
Agent regarding the enforceability of the Transaction Documents under
local law to the extent the law of the location of the Parcel is
applicable thereto. Agent and Trustee confirm that as a matter of
regular practice they intend to require opinions of local counsel only
in respect of the first Parcel located in a given state that is added
to the Property; provided that Trustee and Agent reserve the right to
require opinions of local counsel upon the addition of subsequent
Parcels in such state where they determine (in their sole but
reasonable discretion) that a legitimate need for a local counsel
opinion exists.
(vi) Agent shall have received, reviewed, and
approved an appraisal of the Parcel and of the contemplated New
Improvements to be developed thereon in form and substance, and issued
by an appraiser, satisfactory to Agent. Such appraisal must indicate a
current value of the Parcel (in its unimproved state) of at least 50%
of the amount of the Advance for the Parcel itself, and a value for the
Parcel and contemplated New Improvements (on an "as if vacant" but
completed basis) of at least 50% of the aggregate amount that Lessee
estimates ultimately will be Advanced in respect of such Parcel and New
Improvements. If the appraisal of the vacant Parcel received by Agent
does not adequately support the amount of the requested Advance for the
Parcel itself and Lessee elects to proceed with such Parcel and cover
any additional costs from Lessee's own funds, the amount of the
acquisition Advance will be reduced such that the Acquisition Price of
the Parcel in question, after giving effect to such Advance, will be
not more than twice the appraised value of the vacant Parcel.
(vii) Agent shall have received, reviewed, and
approved (A) a survey of the Parcel in form and substance reasonably
satisfactory to the Agent and in any event sufficient for title
insurance purposes, (B) an environmental site assessment of the Parcel
in question reasonably acceptable to Agent, and (C) such other reports,
studies, or information regarding the Parcel in question as Agent may
reasonably require.
6
<PAGE>
(b) If the Advance in question is in connection with a
Construction Advance to be made by Trustee under the Lease in respect of New
Improvements that have been constructed by Lessee on a Parcel:
(i) Agent has received and approved original executed
counterparts of a Construction Supplement to the Lease in respect of
the New Improvements in respect of which Construction Advance is to be
made.
(ii) Agent has received and approved, where
applicable, the materials required to be supplied by Lessee pursuant to
the Construction Addendum to the Lease evidencing the completion of the
New Improvements in question, the payment of the costs therefor, and
the performance of Lessee's other obligations thereunder to support
Lessee's entitlement to the Construction Advance in question.
(iii) Agent shall have received, reviewed, and
approved an "as-built" survey of the Parcel in question dated
subsequent to completion of the New Improvements thereon in form and
substance reasonably satisfactory to Agent which shall show the
location of all New Improvements thereon and that the New Improvements
are completely within the boundaries of the Parcel, shall not indicate
the violation of any Laws, the encroachment across or on any easement
(except as otherwise approved by Agent), or the violation of any
restrictive covenant or other restrictions, and shall not reflect any
other conditions not reasonably acceptable to Agent.
(iv) The Title Company shall have issued (or provided
Agent with evidence satisfactory to Agent that the Title Company is
irrevocably obligated to issue immediately after funding of the Advance
in question) an endorsement to the Owner Title Policy and the Mortgagee
Title Policy covering the Parcel in question increasing the coverage to
the aggregate amount advanced in respect of the Parcel and Improvements
thereon, without exceptions unacceptable to Agent in its reasonable
discretion. Any Permitted Encumbrances approved by Agent in connection
with the addition of the applicable Parcel to the Property may not be
disapproved by Agent in connection with a subsequent Advance in respect
of such Parcel so long as the construction of the New Improvements has
not created any encroachments or other problems related thereto that
did not exist when the Permitted Encumbrance in question was originally
approved.
(v) Agent shall have received, reviewed, and approved
an "as-built" appraisal of the Parcel and the completed Improvements
thereon in form and substance, and issued by an appraiser, satisfactory
to Agent indicating an "as if vacant" value of the Parcel and completed
New Improvements thereon of not less than 50% of the Acquisition Price
(as defined in the Lease) of the Parcel in question after giving effect
to the requested Advance. In the event the appraisal received by Agent
does not adequately support the amount of the requested Advance the
7
<PAGE>
amount of the Advance shall be reduced such that the Acquisition Price
of the Parcel in question after giving effect to such Advance will be
not more than twice the appraised value of the Parcel.
(vi) The Lessee that leases the Parcel in question
under the Lease has received a certificate of occupancy (or local
equivalent), if any, required for lawful occupancy, and has opened for
business in, the New Improvements.
(c) In addition to Lessee's right to obtain Construction
Advances upon completion of New Improvements on a Parcel as provided for in
subsection 1.04(b) above, Lessee may obtain "Interim Advances" (herein
so-called) to reimburse Lessee for costs theretofore incurred in connection with
the construction of New Improvements that are not yet completed and are
therefore not yet eligible for Construction Advances pursuant to subsection
1.04(b). Interim Advances shall be treated as "Construction Advances" and
"Advances" for all purposes of the Transaction Agreement and the other
Transaction Documents, except as otherwise specifically provided in this
subsection 1.04(c). Interim Advances are subject to the following:
(i) Interim Advances may be obtained by Lessee not
more than six (6) times per annum. For administrative convenience of
the parties Lessee will use its best efforts to coordinate the timing
of Interim Advance requests with requests for other Advances for which
Lessee may be eligible.
(ii) The amount of each Interim Advance shall be not
less than $250,000.00. Costs associated with the New Improvements on
more than one Parcel may be aggregated to reach the required minimum
amount for the Interim Advance, but costs for each Parcel shall be
accounted for separately. The aggregate amount of Interim Advance(s) on
a Parcel shall not exceed 85% of the anticipated construction costs for
New Improvements on that Parcel, with all remaining costs being funded
only through a Construction Advance pursuant to Section 1.04(b) upon
Lessee's satisfaction of all requirements applicable thereto.
(iii) Purchasers shall have no obligation to make any
Interim Advance hereunder if, at the time such Interim Advance would
otherwise be made, the Debt Rating of Lessee is lower than BBB (as
rated by Standard & Poor's Corporation) or lower than Baa2 (as rated by
Moody's Investors Service). However, if Lessee thereafter reattains the
required Debt Rating and is otherwise then eligible for an Interim
Advance, Lessee may reinstate its requests for Interim Advances that
were not available to it because of failure to satisfy the Debt Rating
requirements. Such Debt Rating requirements are applicable to Interim
Advances only, and do not affect the provisions of Section 1.04(g)
below applicable to Advances generally.
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(iv) Costs related to the New Improvements on any
particular Parcel may be included in only two (2) Interim Advances.
However, the foregoing shall not preclude Lessee from obtaining an
Advance for the acquisition of such Parcel pursuant to subsection
1.04(a) and/or a final Construction Advance in respect of the New
Improvements on such Parcel pursuant to subsection 1.04(b) upon
satisfaction of the requirements of such provisions.
(v) The amount of any Construction Advance available
to Lessee pursuant to subsection 1.04(b) in respect of a given Parcel
shall be reduced to the extent that costs that would otherwise have
been included in such Construction Advance have previously been funded
through an Interim Advance.
(vi) The amount of the Interim Advance attributable
to any particular Parcel and the New Improvements thereon shall not
exceed the costs of acquiring the Parcel and/or the cost of
construction of the New Improvements theretofore constructed and in
place on the Parcel (reduced by the amount of any previous Advance in
connection with acquisition of the Parcel in question), as reasonably
substantiated to Agent. Applicable transaction costs and "soft" costs
related to the addition of the Parcels and/or the development of the
New Improvements shall also be eligible for inclusion in an Interim
Advance.
(vii) Each request for any Interim Advance must be
accompanied by a written certification by a senior financial officer of
Lessee (i) that the costs for which the Interim Advance in question has
been requested have been incurred by Lessee and the work for which such
Interim Advance is requested has been completed and is in place, all in
substantial accordance with the Plans for the work in question
previously approved by Agent, (ii) that Lessee expects to complete
construction of the New Improvements to which the Interim Advance
relates on or before the applicable Required Completion Date, (iii)
certifying the amount of costs that are not covered in the Interim
Advance that Lessee reasonably expects to spend to complete the New
Improvements in question ("Remaining Costs"), (iv) that upon completion
of the New Improvements the Lessee expects that the "as-built"
appraisal for such New Improvements will satisfy the requirements of
this Transaction Agreement for purposes of obtaining a final
Construction Advance covering all costs of construction and development
thereof in accordance with subsection 1.04(b)(v) of this Transaction
Agreement, (v) identifying any new Liens affecting the Parcel of which
such officer has received actual written notice and certifying that
with respect to any such Liens and any further liens that may be filed,
Section 7(a) of the Lease will be applicable thereto, and (vi) that
Lessee then satisfies all other applicable requirements for obtaining
the requested Interim Advance and will continue to do so after giving
effect to the Interim Advance in question.
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(viii) As further conditions to any Interim Advance:
(A) Agent shall have received and approved
original executed counterparts of an Interim Construction
Supplement to the Lease in respect of the Interim Advance in
question in substantially the form attached to the Lease. Each
Interim Construction Supplement shall be treated in the same
manner as, and shall be included as, a "Construction
Supplement" for all purposes of this Transaction Agreement and
the other Transaction Documents.
(B) Agent shall have received and approved,
where applicable, the materials required to be supplied by
Lessee pursuant to the Construction Addendum to the Lease
evidencing construction (to the extent that the costs thereof
are included in the Interim Advance request) of the New
Improvements in question, the payment of the costs therefor,
and the performance of Lessee's other obligations thereunder
to support Lessee's entitlement to the Interim Advance in
question. In this regard the parties acknowledge that the
conditions set out in the Construction Addendum shall be
applicable only to the extent that such conditions would be
reasonably expected to have been completed or satisfied in the
course of construction in a commercially prudent manner to the
stage at which the construction on the New Improvements in
question is then advanced, as reasonably determined by Agent.
(C) Agent shall have received, reviewed, and
approved (either at the time the Parcel was added to the
Property or in connection with the Interim Advance in
question) an "as-if-completed" appraisal of the Parcel(s) and
the completed Improvements to be constructed thereon in form
and substance, and issued by an appraiser, satisfactory to
Agent indicating, on an "as if vacant" basis, that the Parcel
and Improvements to be constructed thereon will have a value,
when completed, of not less than 50% of the sum of the
Acquisition Price (as defined in the Lease) of the Parcel in
question after giving effect to the requested Interim Advance
and the amount of Remaining Costs for such Parcel. In the
event the appraisal received by Agent does not adequately
support the amount of the requested Advance the amount of the
Advance shall be reduced such that the sum of the Acquisition
Price of the Parcel in question after giving effect to such
Advance and the amount of Remaining Costs for such Parcel will
be not more than twice the appraised value of the Parcel.
(D) Agent shall have the right, in its
discretion, to waive the requirement for delivery by Lessee of
any items or materials required to be supplied by Lessee
hereunder with respect to a Parcel; provided, however, that
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any such waiver with respect to a Parcel shall not be deemed
to constitute a waiver with respect to any future Parcel(s).
(d) Regardless of whether the Advance is in connection with
the addition of a Parcel or in connection with a Construction Advance under the
Lease:
(i) No Casualty or Condemnation (as those terms are
defined in the Lease) shall have occurred with respect to any portion
of the Parcel to which such Advance is being made.
(ii) No Event of Default has occurred and is
continuing, and no Special Incipient Default exists under the Lease.
(iii) All reasonable costs and expenses incurred by
Agent or Trustee in connection with the Advance in question, and all
reasonable fees or other payments due in respect of such Advance, have
been paid (or arrangements satisfactory to Agent and Trustee regarding
the payment thereof have been made). It is agreed that so long as no
Event of Default exists no overhead or other internal costs of the
Agent shall be payable by Lessee; provided that the foregoing
limitation shall not be deemed to limit or restrict amounts that are
otherwise recoverable by Agent pursuant to any Transaction Document if
an Event of Default exists.
(iv) No material adverse change has occurred in the
financial condition or business of Lessee and its consolidated
subsidiaries, taken as a whole, as shown on or reflected in a
consolidated balance sheet of Lessee, or its consolidated statement of
income or cash flow, other than changes in the ordinary course of
business that will not have any materially adverse effect, either
individually or in the aggregate, on the business or financial
condition of Lessee and its consolidated subsidiaries.
(v) The amount of the Advance shall not exceed the
costs of acquiring the Parcel and/or the cost of the New Improvements,
as reasonably substantiated to Agent. Applicable transaction costs and
"soft" costs related to the addition of the Parcels and/or the
development of the New Improvements shall be eligible for Advance,
subject to the overall limitation that the value of the Parcel or
Improvements in question must support the amount of the Advance (based
on the appraisal requirements set out in subsection [b][v] above).
(e) The conditions set out in both subsections (a) and (b)
shall apply, subject to reasonable modifications under the circumstances, in the
event Lessee requests an Advance in respect of an improved Parcel where the
Improvements existing thereon are to be occupied under the Lease rather than
being entirely demolished, with or without renovation and/or construction of New
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Improvements, and whether or not a subsequent "Construction Advance" is
anticipated.
(f) To the extent applicable the underwriting guidelines
listed on Schedule 2 attached hereto shall be adhered to by the Agent in
evaluating any requested Advance. Any matters not specifically addressed in such
guidelines shall be subject to the approval of Agent in the exercise of its
reasonable discretion.
(g) Anything to the contrary herein notwithstanding:
(i) Purchasers shall have no obligation to make any
Advance hereunder for the addition of a Parcel to the Property if, at
the time such Advance would otherwise be made, the Debt Rating of
Lessee is lower than BBB- (as rated by Standard & Poor's Corporation or
Baa3 (as rated by Moody's Investors Service), or the Debt Rating of
Lessee is BBB-/Baa3 and Lessee is then on "credit-watch" status with
either rating agency; and
(ii) Purchasers shall have no obligation to make any
Advance hereunder as a Construction Advance in respect of a Parcel
previously added to the Property if, at the time such Advance would
otherwise be made, the Debt Rating of Lessee is BB+ or lower (as rated
by Standard & Poor's Corporation or Ba1 or lower (as rated by Moody's
Investors Service).
Section 1.05. Advance Process. The following procedures and limitations
shall be applicable to each Advance unless otherwise waived by Agent:
(a) Lessee shall notify Agent in writing not less than fifteen
(15) days prior to the date on which the Advance in question is desired (or, in
the case of the first Advance hereunder in respect of a Parcel located within a
given state, not less than thirty (30) days prior to the date on which the
Advance in question is desired). The requested Advance shall be funded by the
Purchaser(s) on or before the requested date if Lessee has satisfied all of the
conditions precedent to the requested Advance (other than the execution and
delivery of the necessary Supplements and related closing documents) at least
five (5) Business Days prior to the requested Advance date. Neither Agent nor
Trustee shall have any liability or obligation to Lessee if an Advance cannot be
completed at the time requested by Lessee if all required materials are not
supplied by Lessee in a timely manner.
(b) All materials that are to be reviewed and/or approved as a
condition to the requested Advance shall be submitted to Agent (and, in the case
of the environmental site assessment for a Parcel to be added to the Property,
to the Trustee) for review and approval simultaneously with Lessee's request for
Advance. Except for the environmental site assessment, Lessee shall not be
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required to deliver materials directly to Trustee unless Lessee is specifically
requested to do so by Agent, it being the responsibility of Agent and its
counsel to coordinate the funding of each Advance (Agent will provide Trustee
with copies of all such materials approved by the Agent as needed). The parties
acknowledge that it may be necessary, in certain cases, for Agent to obtain
approval of one or more such items by one or more of the Purchasers to fulfill
Agent's obligation to such Purchasers, but Agent shall be responsible for
obtaining a timely response from any such Purchaser, and any Purchaser that does
not respond to Agent in a timely manner shall be deemed to have consented to or
approved the matter in question. Trustee and Lessee may rely upon any consent or
approval of any matter given by Agent without inquiry as to whether any required
approvals of any Purchasers have in fact been obtained by Agent.
(c) In connection with each Advance, Agent shall prepare the
necessary supplements to the Lease, and other documents, if any, reasonably
required in connection with such Advance and submit counterparts of the
necessary documents to all applicable parties for execution and delivery. Agent
shall submit to the Trustee all such supplements or other documents requiring
the Trustee's signature with instructions authorizing the Trustee's execution
and delivery of the same. Upon completion of the documents executed in
connection with any Advance, Agent shall deliver to Trustee a copy of the
document transcript for such Advance.
(d) Lessee and Agent, and Trustee (where necessary) shall make
such mutually satisfactory arrangements for the closing and funding of the
Advance, including, without limitation, escrow arrangements with a Title Company
or closing attorney where applicable, as may be necessary or appropriate under
the circumstances.
(e) In no event shall any Advance be available after August
31, 1998 ("Outside Funding Date"). On the Outside Funding Date, any unused
Commitment of the Purchasers shall be canceled and of no further effect.
Section 1.06. Form of Documents. All instruments, documents, or
materials executed by or for the benefit of, or submitted to, Agent or
Purchasers in connection with this Agreement, including, without limitation,
documents submitted in connection with Advances, shall be in form and substance
reasonably acceptable to Agent and its counsel.
Section 1.07. Transaction Fees. Lessee shall pay from time to time the
following fees related to the transactions contemplated herein:
(a) Arranging/Structuring Fee. Lessee shall pay to CLI or an
Affiliate of CLI a structuring fee in the amount of $247,500 cash upon execution
of this Agreement.
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(b) Servicing Fee. Subject to the terms of a certain side
letter agreement of even date herewith between Agent and Lessee regarding a
limitation on such fee, on each December 15 (starting December 15, 1997)
throughout the term of this Agreement, as well as on the Maturity Date, Lessee
shall pay to CLI or an Affiliate of CLI a servicing fee in an amount equal to
0.125% of the weighted average outstanding principal balance of the Notes and
the weighted-average outstanding amount of the Certificates for the preceding
year. The first payment shall be prorated on a daily basis for the period from
the date hereof through December 15, 1997, and the last payment due on the
Maturity Date shall also be a prorated payment covering the period December 16,
2002, through the Maturity Date.
(c) Commitment Fee. On each March 30, June 30, September 30,
and December 30 through and including September 30, 1998, Lessee shall pay to
the Purchasers a commitment fee (computed quarterly in arrears) in an amount
equal to one-fourth of the amount determined by multiplying the unused portion
of the Commitment (computed on a weighted average daily basis during the
quarter) by the applicable percentage provided for in the following chart:
Lessee's Debt Rating Commitment Fee Rate
-------------------- -------------------
BBB+ (or higher) 15.0 basis points
BBB 20.0 basis points
BBB- 26.5 basis points
lower than BBB- 32.5 basis points
The first payment due on March 30, 1997, shall be prorated on a daily basis for
the period from the date hereof through March 30, 1997, and the last payment due
September 30, 1998, shall also be a prorated payment reflecting only the period
July 1, 1998, through the Outside Funding Date. In the event the Outside Funding
Date is extended, the obligation to continue to pay a commitment fee on the
unused portion of the Commitment shall be likewise extended. In the event that
Lessee desires to terminate its right to obtain Advances hereunder prior to the
Outside Funding Date, Agent and Trustee agree to enter into an amendment to this
Agreement and the other Transaction Documents as necessary to terminate the
obligation of the Purchasers to advance the unused portion of the Commitment,
and after such termination no further commitment fees shall be due.
(d) Trustee Fees. From time to time the Lessee shall pay to
the Trustee the various fees and other payments provided for in the Declaration
of Trust and/or in the Fee Letter.
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Section 1.08. Extension of Lease Term.
------------------------
(a) Anything to the contrary in the Lease or any other
Transaction Document to the contrary notwithstanding, it is expressly agreed
that the Term of the Lease may not be extended without the unanimous approval of
the Instrument Holders, which approval may be withheld or conditioned in such
Instrument Holders' sole discretion. Neither Agent nor Trustee shall have the
authority to grant approval of any extension of the Term of the Lease requested
by Lessee unless all Instrument Holders have approved the extension in question.
Agent shall be responsible for polling the Instrument Holders in the event
Lessee requests an extension of the Term of the Lease, and Lessee and Trustee
shall be entitled to rely on any statement or certificate issued by Agent
confirming that all Instrument Holders have approved the requested extension. In
connection with any such extension of the Term of the Lease, Lessee, Trustee,
Agent, and the Instrument Holders shall enter into such supplements and
amendments to all Transaction Documents (including, without limitation,
amendments or reissuance of the Instruments themselves), as any party may
reasonably require to reflect the agreements of the parties with respect to such
extension.
(b) In the event that Lessee and Agent desire to extend the
term of the Lease and one or more Instrument Holders are unwilling to approve
such extension, Lessee and Agent shall endeavor, as more fully described in the
Lease, but at Lessee's sole cost, to arrange for replacement of the Instrument
Holders that do not desire to extend the Lease.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.01. Lessee's Representations and Warranties. The Lessee
hereby represents and warrants to the Trustee, Agent, Purchasers, and the
Instrument Holders that the following statements are true and correct as of the
date hereof:
(a) Organization and Authority. Lessee (i) is duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Pennsylvania, (ii) has full corporate power and authority
to own and operate its properties and to conduct its business as presently
conducted, and full corporate power, authority and legal right to execute,
deliver and perform its obligations under this Agreement and all other
Transaction Documents to which Lessee is a party, and (iii) is duly qualified to
do business as a foreign corporation in good standing in each jurisdiction in
which its ownership or leasing of properties or the conduct of its business
requires such qualification.
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(b) Enforceability. This Agreement and all other Transaction
Documents to which Lessee is a party have been duly authorized, executed and
delivered by Lessee and each is a legal, valid and binding obligation of Lessee,
enforceable according to its terms (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other Laws or principles
of equity affecting the enforcement of creditors' rights generally).
(c) No Conflict. The execution, delivery and performance by
Lessee of this Agreement and all other Transaction Documents to which Lessee is
a party will not result in any violation of any term of the certificate or
articles of incorporation or the by-laws of Lessee, does not require stockholder
approval or the approval or consent of any trustee or holders of debt of Lessee
except such as have been obtained prior to the date hereof, and will not
conflict with or result in a breach of any terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien upon, any
property or assets of Lessee under, any indenture, mortgage or other agreement
or instrument to which Lessee is a party or by which it or any of its property
is bound, or to Lessee's knowledge, any existing applicable law, rule,
regulation, license, judgment, order or decree of any government, governmental
body or court having jurisdiction over Lessee or any of its activities or
properties, including, without limitation, any rule or order of any public
utility commission or other governmental body.
(d) Consents and Approvals. There are no consents, licenses,
orders, authorizations or approvals of, or notices to or registrations with any
governmental or public body or authority which are required in connection with
the valid execution, delivery and performance of this Agreement and all other
Transaction Documents to which Lessee is a party by Lessee that have not been
obtained or made, and any such consents, licenses, orders, authorizations,
approvals, notices and registrations that have been obtained or made are in full
force and effect.
(e) Pending Matters. Except as disclosed in writing to Agent
by Lessee concurrently herewith, there is no action, suit, proceeding or
investigation at law or in equity by or before any court, governmental body,
agency, commission or other tribunal now pending or, to the best knowledge of
Lessee, threatened against or affecting Lessee or any property or rights of
Lessee as to which there is a significant possibility of an adverse
determination, and which if adversely determined, may have a material adverse
effect on the financial condition or business of Lessee or which, if adversely
determined could materially impair the ability of Lessee to perform its
obligations under the Lease or any Transaction Document to which Lessee is a
party, and there is no action, suit, proceeding or investigation at law or in
equity by or before any court, governmental body, agency, commission or other
tribunal now pending or, to the best knowledge of Lessee after due inquiry,
threatened against Lessee which questions or would question the validity of the
Lease or any Transaction Agreement.
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(f) No Default. Lessee is not in default under or with respect
to any agreement or other instrument to which it is party or by which it or its
assets may be bound which would have a material adverse effect on the financial
condition of Lessee or the ability of Lessee to perform its obligations under
the Lease or any other Transaction Document to which Lessee is a party. Lessee
is not subject to or in default under any order, award or decree of any court,
arbitrator, or other governmental authority binding upon or affecting it or by
which any of its assets may be bound or affected which would have a material
adverse effect on the ability of Lessee to carry on its business as presently
conducted or to perform its obligations under this Agreement and all other
Transaction Documents to which Lessee is a party.
Section 2.02. Trust Company Representations. Trust Company, in its
individual capacity and not as Trustee (with the exception of clauses [d][ii]
and [f][ii], which representations are made solely in its trust capacity),
represents and warrants to the Lessee, to Agent, and the Instrument Holders that
the following statements are and shall be true and correct as of the Closing
Date:
(a) Organization and Authority. Trust Company is a trust
company duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts, and Trust Company has all
requisite corporate power and authority to execute and deliver the
Instruments, the Declaration of Trust, and each Transaction Document to
which it is a party (regardless of the capacity in which it is a party
thereto) and to comply with the terms thereof and perform its
obligations thereunder. The trust created by the Trust Declaration is a
trust formed by Trust Company for the sole purpose of acquiring,
financing, and leasing the Property.
(b) No Actions Pending. There is no action, suit, proceeding
or investigation at law or in equity by or before any court,
governmental body, agency, commission or other tribunal now pending or,
to the knowledge of the Trust Company, threatened, against or affecting
the Trust Company, (i) which questions the validity or enforceability
of this Agreement or any of the other Transaction Documents to which
the Trust Company is a party (regardless of its capacity therein), or
(ii) the probable outcome of which would impair the ability of the
Trust Company to perform its obligations under any Transaction Document
to which it is or is to be a party.
(c) No Violation. The Trust Company's or the Trustee's
respective execution, delivery and performance of its obligations under
each Transaction Document to which it is or is to be a party
(including, without limitation, the execution, delivery, and
performance by Trustee of the Lease in its capacity as Lessor
thereunder) will not violate such party's charter or by-laws, will not
contravene any federal or state law, governmental rule or regulation
(which representation shall be limited to the laws of Massachusetts and
United States federal law) pertaining to its banking or trust powers,
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judgment or order applicable to such party or any of its assets, and
will not require the consent or approval of any stockholders of the
Trust Company or of any trustee or holder of any material indebtedness
of the Trust Company, will not conflict with or result in a breach of
any term or provision of, or constitute any default under, indebtedness
for the repayment of borrowed money or any other material indenture,
mortgage, contract, agreement or other instrument to which it is a
party or by which it or any of its assets is bound, will not result in
any violation of any Laws (which representation shall be limited to the
laws of Massachusetts and United States federal law pertaining to its
banking or trust powers), which violation of any such Law would
materially adversely affect the ability of such party to perform its
obligations under any Transaction Document to which it is or is to be a
party or question the validity or enforceability of the Transaction
Documents to which it is or is to be a party or require the consent or
approval of, the giving of notice to, the registration, qualification
or filing with, or the taking of any other action with respect to, any
federal or state governmental commission, authority, body or agency
under any existing law (which representation shall be limited to the
laws of Massachusetts and United States federal law) governing the
banking or trust or fiduciary powers of the Trust Company, except for
filings, if any, made pursuant to any periodic reporting requirements
applicable to it.
(d) Authorization, Execution, Delivery and Enforceability of
Transaction Documents. Each of the Transaction Documents to which Trust
Company is or is to become a party, and any other agreement entered
into in connection with any transaction contemplated by any Transaction
Document, has been duly authorized by all necessary action on the part
of Trust Company, has been duly executed and delivered, and is the
legal, valid and binding obligation of Trust Company enforceable
against Trust Company in accordance with its terms, except as
enforceability thereof may be limited by the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general principles of
equity. Each of the Transaction Documents to which the Trustee
(including, without limitation, in its capacity as Lessor) is or is to
become a party, and any other agreement entered into in connection with
any transaction contemplated by any Transaction Document, (i) has been
duly authorized by all necessary action on the part of the Trustee, has
been duly executed and delivered, and (ii) is the legal, valid and
binding obligation of Trustee (but not Trust Company) enforceable
against such party in accordance with its terms, except as
enforceability thereof may be limited by the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general principles of
equity.
(e) Authorizations and Consents. The nature of Trust Company,
its execution and delivery of each Transaction Document to which it is
a party (regardless of the capacity in which it is a party), its
consummation of the transactions contemplated thereby, its compliance
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with the terms thereof or any circumstance in connection with the
transactions contemplated thereby does not require the consent of any
Person or the approval or authorization of, or filing, registration or
qualification with, any Massachusetts or federal governing authority
governing the banking or trust powers of Trust Company (other than such
as have been obtained) as a condition to such execution, delivery and
compliance. All authorizations, consents, licenses, orders, approvals,
waivers, extensions or variances of, or notices to or registrations or
filings with any governmental department, commission, board, bureau,
agency or instrumentality (which representation shall be limited to the
laws of Massachusetts and United States federal law pertaining to its
banking or trust powers) necessary to the valid execution, delivery and
performance by the Trust Company and the Trustee, respectively, of the
Declaration of Trust, this Agreement and the other Transaction
Documents to which such party is or is to be a party have been
obtained.
(f) Authorization, Execution, Delivery and Enforceability of
Instruments. Each of the Notes and the Certificates (i) has been duly
authorized by all necessary corporate action on the part of the Trust
Company, in its capacity as Trustee, has been duly executed and
delivered by the Trustee, and (ii) constitutes a legal, valid and
binding obligation of the Trustee (acting solely as Trustee under the
Declaration of Trust, and not in its individual capacity), enforceable
against the Trustee in accordance with their terms and the terms of the
Declaration.
(g) Liens. Trust Company has not voluntarily created or
granted any Lien upon any portion of the Property other than in
accordance with the terms of the Transaction Documents.
(h) No Brokers. Trust Company has entered into no agreements,
arrangements or negotiations that would require the payment of any fees
or compensation to any brokers, finders, or similar persons in
connection with the transactions contemplated hereby except for such
fees and expense reimbursements to the parties hereto and their
respective counsel as are provided for in the Transaction Documents
and, in the case of the Trustee, the Fee Letter, and Trust Company
(solely with respect to the above actions taken by it in its individual
capacity) agrees to indemnify, defend and save harmless each other
party hereto from and against any claims for fees or commissions from
any Person engaged by the Trust Company.
(i) Offer of Interests. Neither the Trust Company nor any
Person authorized to act on its behalf has directly or indirectly
offered any interest in the Trust Estate or under the Declaration of
Trust or any interests similar thereto or the Instruments or any
similar security, or offered any thereof for sale to, or solicited any
offer to buy any thereof from, or otherwise approached or negotiated
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with respect thereto with, any Person, which offer or solicitation
would require registration under the Securities Act.
ARTICLE III.
TRUSTEE AND TRUST COMPANY COVENANTS
-----------------------------------
Until the Trustee's obligations hereunder, under the Declaration of
Trust, and all other Transaction Documents have been paid and performed in full,
unless Trustee receives from Agent a written statement specifying that the
Majority Holders do not object to a deviation, Trustee covenants and agrees with
Lessee, Agent, and each of the Instrument Holders as follows:
Section 3.01. Lien Claims. Trustee shall (a) promptly furnish to Agent
and Lessee a copy of any notice of claims sent to Trustee by any person claiming
or asserting any Lien on any portion of the Property, and (b) not create or
authorize any Liens (other than the Permitted Encumbrances) on the Property
arising by, through, or under Trustee.
Section 3.02. Inspection of Property. At all reasonable times, Trustee
shall permit Agent and/or its representatives to inspect the Property, provided
that such inspection rights are subject to all limitations and restrictions upon
the right of Trustee (as "lessor" under the Lease) to inspect the Property under
the Lease.
Section 3.03. Notice of Significant Matters.
(a) Trustee shall promptly supply to Agent and Lessee copies
of any tax or other bills, and any other notices or other material
communications received by Trustee from any Person (including, without
limitation, Lessee, Lease Guarantor, or any Tribunal) relating to the Property
or any Transaction Document unless it is evident that Agent and/or Lessee, as
the case may be, shall have independently received such communication. Without
limitation, it is expressly intended that the foregoing covenant shall require
delivery to Agent and Lessee of any notice or communication received by Trustee
with respect to any compliance or non-compliance of the Property with respect to
Environmental Laws, or the presence of Hazardous Materials on or emanating from
the Property. Notwithstanding the foregoing, however, Trustee shall have no
obligation to provide Lessee with copies of any instructions, communications,
directions, or authorizations received from Agent or any Instrument Holder with
respect to or relating to actions to be taken by the Trustee as a result of an
Event of Default or Incipient Default.
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(b) Trustee shall give at least thirty (30) days prior written
notice to Agent, each Instrument Holder, and Lessee of any change in the place
of business of, or the change in the legal, trade or fictitious business names
used by Trustee and shall, upon Agent's or Lessee's request, execute any
additional certificates or instruments that Agent or Lessee may deem appropriate
or necessary in connection with any such change.
(c) Trustee shall also notify Agent and Lessee in writing
within five (5) Business Days after Trustee acquires knowledge of the occurrence
of any event or circumstance that would, with or without notice and or the
passage of time, be or become an "Event of Default," "Default" or "Environmental
Event," under any of the Transaction Documents.
Section 3.04. Qualification; Business; Use of Advances. The Trustee
covenants and agrees (i) to appoint a Co-Trustee pursuant to Section 8.04 of the
Declaration of Trust, if required, to qualify in each state in which a Parcel is
located, (ii) to conduct no business other than in respect of the Property, and
(iii) to use the Advances solely to acquire the Parcels and Improvements, as the
Agent may direct, in accordance with the Transaction Documents.
Section 3.05. Encumbrances
------------
(a) Trustee shall not, directly or indirectly, (i) authorize
any materials, equipment, fixtures, or any other part of the Property to be
purchased or installed under any arrangement wherein a Lien (other than a
Permitted Encumbrance) on such property is retained or the right is reserved or
accrues to any Person to remove or repossess any such items or to consider such
as personal property, or permit any lease of any equipment or improvements
related to the operation of the Improvements, or (ii) otherwise create, incur,
or suffer or permit to be created or incurred or to exist any Lien upon any of
the Parcels or Improvements, except Permitted Encumbrances, or authorize any
financing agreement pertaining to the financing of any equipment or improvements
related to the Property and its operation; provided, however, that Trustee shall
not be in violation of this covenant if Lessee is making a valid contest to such
Lien in compliance with all applicable Laws and in accordance with the contest
provisions of the Lease.
(b) The foregoing limitations and restrictions shall not apply
to Lessee's Equipment, as to which Lessee, but not Trustee, may grant
encumbrances or take other actions as may be permitted under the terms of the
Lease.
Section 3.06. Transaction Documents
---------------------
(a) Trustee shall not (and shall not purport to) enter into,
amend, modify, permit an assignment or subletting with respect to, terminate,
surrender, take discretionary action with respect to, or cancel any Transaction
Documents, including, without limitation, the Declaration of Trust, without the
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consent of the Majority Holders, which consent may be withheld in such Holders'
discretion except in those instances where the Transaction Documents require
that such approval be exercised reasonably, in which event the Holders shall not
unreasonably withhold or delay their approval of the matter in question.
(b) Trustee shall not amend, supplement, modify, or terminate
the Declaration of Trust without the prior written consent of Lessee, which
consent shall not be unreasonably withheld so long as Lessee's rights and
interests are not materially adversely affected thereby. The Lessee shall be
deemed to be a third party beneficiary under the Declaration of Trust to the
extent of the rights (including, without limitation, rights relating to any
monies, consents, approvals and notices) given to the Lessee thereunder, and the
Lessee shall have a direct right to enforce all such rights. Notwithstanding the
foregoing, Lessee shall not be responsible for any costs or expenses incurred in
connection with any modifications to the Declaration of Trust that are not
requested by Lessee.
Section 3.07. Transactions with Affiliates. Trustee will not, directly
or indirectly, enter into any transaction with respect to the ownership of the
Property (or, if at any time the Trustee obtains possession of the Property as a
result of the expiration or termination of the Lease, the operation of the
Property) with any of its Affiliates other than in the ordinary course of
business and upon fair and reasonable terms no less favorable than Trustee could
obtain or could become entitled to in an arm's-length transaction with a Person
which was not an Affiliate of Trustee. No transactions by Trustee (whether with
Affiliates of Trustee or otherwise) shall affect Lessee's rights with respect to
the Property pursuant to the Lease so long as no Event of Default exists.
Section 3.08. Transfer or Encumbrance of the Property. Except as a
result of the exercise by Lessee or a nominee of Lessee of any options to
purchase the Property or a portion thereof contained in the Lease, or at the
request of Agent or the Majority Holders after the occurrence of an Event of
Default, Trustee will not, directly or indirectly, voluntarily or by operation
of Law, sell, convey, transfer, assign, encumber, pledge, lease, rezone, or
permit to be sold, conveyed, transferred, assigned, encumbered, pledged, leased
(except for the Lease and any sublease permitted under the terms of the Lease)
or rezoned, or otherwise dispose of, any interest in all or any part of the
Property without Agent's prior written approval, which approval may be withheld
for any reason in the sole and absolute discretion of Agent. So long as the
Lease remains in effect, any transaction by Trustee with respect to the Property
approved by Agent shall be made expressly subject to the rights of Lessee under
the Lease, including Lessee's purchase options thereunder. Notwithstanding the
foregoing, Agent agrees to execute such instruments or documents as Lessee may
request in connection with the granting of easements or other such interests
affecting the Property under those circumstances where the Lessee is permitted
to grant such rights pursuant to the Lease and after Lessee has satisfied all
requirements of the Lease with respect to such matters. In no event shall Agent
be obligated to grant any recognition, non-disturbance or other rights to any
subtenant of Lessee under the Lease that
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would survive termination or expiration of the Lease. The Trustee shall not
voluntarily create or grant any Lien upon any portion of the Property other than
in accordance with the terms of the Transaction Documents.
Section 3.09. Compliance with Laws and Documents. Trustee will not,
directly or indirectly, violate, or permit or authorize Lessee to violate, the
provisions of any Laws, any Transaction Document, or any of the instruments and
documents constituting or evidencing Permitted Encumbrances. Further, Trustee
will not change, or cause or seek a change (nor, to the extent within Trustee's
control, will Trustee permit Lessee or any third party to do so) in any Laws or
any private contracts or other agreements that may cause a material adverse
effect on the ownership, use, or operation of the Property without the prior
written consent of Agent; provided, however, that Trustee shall not be in
violation of the covenants in this Section if Lessee is making a valid contest
to such Lien in compliance with all applicable Laws and in accordance with the
contest provisions of the Lease.
Section 3.10. Assignment. Trustee will not, directly or indirectly,
assign or transfer, or attempt to do so, any of its Rights, duties, or
obligations under any of the Transaction Documents except to a successor trustee
appointed in accordance with Section 8.02 of the Declaration of Trust. Any
resignation by Trustee (whether permitted or not) of Trustee under the
Declaration of Trust shall not affect Lessee's rights with respect to the
Property under the Lease. If the Trustee is replaced by a successor trustee, all
reasonable costs incurred by Agent, Trustee, or the successor trustee in
connection with the substitution of the Trustee, the assignment of the rights
and duties of the Trustee to the successor trustee, and the transfer of the
Trust Estate to the successor trustee shall be borne by Lessee.
Section 3.11. Other Tenant Leases. Other than the Lease, Trustee shall
not enter into any lease, tenancy, occupancy arrangement, or other similar
agreement with respect to the Property, or any portion thereof nor shall Trustee
consent to the entry by Lessee into any sublease of all or any portion of the
Property other than to subleases specifically approved or permitted pursuant to
Section 17 of the Lease, without Agent's prior written consent, which consent
may be withheld for any reason in Agent's sole discretion. Nothing in the
foregoing shall be deemed to prohibit or further condition assignments or
subleases by the Lessee, or the addition of Additional Lessees to the Lease
where permitted under the terms of the Lease.
Section 3.12. Agent's Approval of Settlements. Subject to the rights of
Lessee under the Lease unilaterally to settle certain claims, Trustee shall not
settle or compromise any claims relating to damage claims, insurance proceeds,
or condemnation awards relating to the Property without the prior written
consent of Agent, which shall not be unreasonably withheld so long as no Event
of Default exists.
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Section 3.13. Notice of Actions; Prosecution. Promptly upon obtaining
actual knowledge of any condemnation or threatened condemnation, or any damage
or destruction, of any portion of the Property, Trustee shall notify Agent and
Lessee of such fact. Trustee shall then take such actions, including, without
limitation, exercise of rights provided for in the Lease arising out of such
condemnation, as may be directed by Agent to protect and/or defend the positions
and interests of Trustee and the Instrument Holders with respect to such matter,
but subject to the rights of Lessee under the Lease if the Lease then remains in
effect as to the affected Parcel(s). Agent, on behalf of the Instrument Holders,
shall be entitled to direct the exercise of Trustee's rights in respect of, and
control, such actions (except to the extent that Lessee has the unilateral right
to control such matters under the Lease), including being represented by
separate counsel at Lessee's expense if reasonably deemed necessary by Agent,
and Trustee shall deliver, or cause to be delivered, to Agent such instruments
as Agent may request from time to time to permit such participation.
Section 3.14. Covenants of Trust Company.
(a) The Trust Company shall give at least thirty (30) days
prior written notice to Agent, each Instrument Holder and Lessee of any change
in the place of business of, or the change in the legal, trade or fictitious
business names used by Trust Company and shall, upon Agent's or Lessee's
request, execute any additional certificates or instruments that Agent may deem
appropriate or necessary in connection with any such change.
(b) The Trust Company shall not directly or indirectly create
or permit to be created or remain or leave undischarged any Lien attributable to
it, which is not related to the transactions contemplated by the Transaction
Documents, on any Parcel or Improvements thereon or any interest therein or in
the Trust Estate other than Permitted Encumbrances. The Trust Company agrees
that it will, at its own cost and expense, take such action as may be necessary
duly to discharge and satisfy in full, promptly after the same first becomes
known to the Trust Company, any Lien attributable to it unrelated to the
transactions contemplated by the Transaction Documents.
(c) The Trust Company shall not transfer any of the estates,
properties, rights, powers, duties or trusts of the Trustee to any successor
trustee or to any additional or separate trustee under the Declaration of Trust
without giving written notice thirty (30) days prior to such transfer to the
Agent and the Lessee (unless such transfer is effected pursuant to Section
8.02(d) of the Declaration of Trust, in which event, written notice thereof
shall be provided promptly following such transfer). The Trust Company covenants
and agrees that all such transfers to a successor trustee shall be done in
compliance with and pursuant to the terms and conditions of this Agreement.
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(d) Trust Company shall not amend, supplement, modify or
terminate the Declaration of Trust or any of the other Transaction Documents
without the prior written consent of Lessee, which consent shall not be
unreasonably withheld so long as Lessee's rights and interests are not
materially adversely affected thereby. The Lessee shall be deemed to be a third
party beneficiary under the Declaration of Trust to the extent of the rights
(including, without limitation, rights relating to any monies, consents,
approvals and notices) given to the Lessee thereunder, and the Lessee shall have
a direct right to enforce all such rights. Notwithstanding the foregoing, Lessee
shall not be responsible for any costs or expenses incurred in connection with
any modifications to the Declaration of Trust that are not requested by Lessee.
(e) Trust Company shall maintain its existence as a
Massachusetts trust company and preserve and keep in full force and effect its
rights and franchises as necessary to permit it to serve as Trustee hereunder so
long as it is the Trustee; provided, that the sole obligation of the Trust
Company with respect to a breach of this covenant shall be to resign as Trustee
in accordance with Section 8.02 of the Declaration of Trust.
ARTICLE IV.
THE NOTES AND THE CERTIFICATES
------------------------------
Section 4.01. Rates Applicable to Instruments. Each of the Notes shall
bear interest at the Note Rate applicable to such Note, and each Certificate
shall earn a yield at the Certificate Rate applicable to such Certificate. All
payments of principal, interest, yield and stated amount on the Instruments that
are not paid when due in accordance with the terms of this Agreement and the
applicable Instruments shall bear interest at the Default Rate until paid. To
the extent permitted by applicable Law, interest on the unpaid principal balance
of the Notes and yield on the Certificates from time to time outstanding at the
rates provided in this Agreement shall be calculated on the basis of the actual
number of days elapsed, but computed as if each year consisted of three hundred
and sixty (360) days. However, any calculations of the Maximum Rate shall be
made on the basis of a 365 (or 366, as applicable) day year. Acceptance by
Trustee or any Instrument Holder of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only.
Section 4.02. Assignments and Participations.
-------------------------------
(a) The Lessee may not assign its rights or delegate its
obligations under this Agreement without the prior written consent of all of the
Instrument Holders. The foregoing shall not, however, be deemed to limit
Lessee's rights under the Lease with respect to the Property, including the
right to assign to other parties that constitute "Lessee" under the Lease.
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(b) Each Instrument Holder may assign all or a portion of the
Instruments then held by it and its rights and obligations under this Agreement
and the other Transaction Documents to another bank or financial institution
approved by Lessee, which approval shall not be unreasonably withheld or
delayed. The parties to each such assignment shall execute and deliver to the
Agent for its acceptance and recording in the Register (as defined in the
Declaration of Trust) an "Assignment Agreement" (herein so-called) in
substantially the form attached hereto as Exhibit "A". Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment Agreement (which effective date shall be at least five (5)
Business Days after the execution of such Assignment Agreement), (x) the
assignee thereunder (the "Assignee") shall, to the extent that rights and
obligations hereunder have been assigned to it, have the rights and obligations
of an Instrument Holder hereunder and a Holder under the Transaction Documents
arising subsequent to such assignment and (y) the assignor thereunder (the
"Assignor") shall, to the extent that rights and obligations hereunder have been
assigned by it, relinquish its rights (other than any rights to indemnification
it may have hereunder under the Transaction Documents) under this Agreement with
respect to the Instruments (or interests therein) assigned. No Assignee of an
Instrument or an interest therein shall become a "Purchaser" hereunder nor shall
any Assignee have any Commitment for Advances hereunder as a result of such
assignment, and no Purchaser shall be released from any unfunded Commitment
hereunder as a result of an assignment of the Instruments then held by such
Purchaser. Any Advance made by a Purchaser against its Instruments after the
assignment of an interest in such Instrument to a third party shall be deemed to
have been made by such Purchaser against the portion of the Instrument that is
still held by the Purchaser in question. No Assignee of an Instrument or an
interest therein shall acquire any greater rights with respect to or arising out
of such Instrument therein than were available to the original Holder thereof
(or would be available to such original Holder if it were the then Holder
thereof). Lessee shall not be responsible for any costs, expenses or other
charges in connection with any assignment hereunder.
(c) By executing and delivering an Assignment Agreement, the
Assignor thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) such Assignor makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement and the other Transaction Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
the other Transaction Documents or any other instrument or document furnished
pursuant hereto; (ii) such Assignor makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the Lessee
or the performance or observance by the Lessee of any of its obligations under
this Agreement or any other Transaction Document, any other instrument or
document furnished pursuant hereto; (iii) such Assignee confirms that it has
received a copy of this Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision with respect to entering into such Assignment Agreement; and (iv) such
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Assignee will, independently and without reliance upon the Lessee, the Agent,
the Trustee, such Assignor or any other Instrument Holder and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
(d) Each Instrument Holder may sell participations (as opposed
to assignments of Instruments or assignments of partial interests in
Instruments) to one or more banks or other entities in or to all or a portion of
the Instruments then held by it and its rights and obligations under this
Agreement and the other Transaction Documents; provided, however, that (i) such
Instrument Holder shall remain the Holder of any such Instrument for all
purposes under this Agreement and the other Transaction Documents and the
Lessee, the Trustee, the Agent and the other Instrument Holders shall continue
to deal solely and directly with such Instrument Holder in connection with such
Instrument Holder's rights and obligations under this Agreement; (ii) no
participant shall be entitled to receive any greater payment than such
Instrument Holder would have been entitled to receive with respect to the rights
participated except as a result of circumstances arising after the date of such
participation to the extent that such circumstances affect other Instrument
Holders and participants generally; and (iii) no Instrument Holder shall grant a
participation that conveys to the participant the direct right to vote or
receive notices under this Agreement or other Transaction Documents in respect
of the Instrument in which such participant holds a participation.
(e) Any Instrument Holder may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 4.02, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Lessee furnished to such
Instrument Holder by or on behalf of the Lessee; provided, that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any confidential information
relating to the Lessee received by it from such Instrument Holder in a manner
consistent with that set forth in Section 6.17 hereof and any other provision of
the Transaction Documents relating to the preservation of confidentiality.
(f) Anything in this Section 4.02 to the contrary
notwithstanding, any Instrument Holder may assign and pledge all or any of the
Instruments held by it to any Federal Reserve Bank or the United States Treasury
as collateral security pursuant to applicable regulations of the Board of
Governors of the Federal Reserve System and any operating circular issued by
such Federal Reserve Bank; provided that any payment made by the Lessee to the
Trustee for the benefit of such assigning and/or pledging Instrument Holder in
accordance with the terms of the Transaction Documents shall satisfy the
Lessee's obligations under the Transaction Documents in respect thereof to the
extent of such payment.
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(g) No assignment shall result in a change in the Note Rate or
Certificate Rate applicable to the Instrument in question.
(h) Regardless of the number of Instrument Holders, at all
times the Instrument Holders shall designate a single "Agent" to interface with
Lessee and the Trustee, and the Lessee and Trustee shall be required to pay to
or otherwise deal only with the Agent and not the individual Instrument Holders.
Wherever the Transaction Documents grant rights or remedies to the Instrument
Holders (either in the aggregate or to a particular class of Instrument Holders)
all such rights and remedies shall be exercised through the Agent. Lessee and
Trustee shall be free to ignore directions or instructions delivered directly by
any Instrument Holder rather than by Agent on behalf of the Instrument Holders
(or applicable portion thereof).
Section 4.03. Taxes.
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(a) Any and all payments by the Lessee or the Trustee
hereunder or under any of the Transaction Documents (including, without
limitation, payments of Net Rent, Contingent Rent Payments, Offer Purchase
Price, and Additional Rent (as such terms are defined in the Lease), interest,
current yield, fees and principal and stated amounts of the Instruments) shall
be made free and clear of and without deduction for any and all present or
future Taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of payments made to
each Instrument Holder or the Trustee (as the case may be), (1) taxes imposed on
the Trustee's or such Instrument Holder's income, and franchise taxes imposed on
it, by the jurisdiction under the Laws of which such Instrument Holder or the
Trustee (as the case may be) is organized or any political subdivision thereof
and, in the case of each Instrument Holder, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction of such Instruments Holder's
office where Instrument Holder's interest in the Instruments is administered or
any political subdivision thereof and (2) any taxes imposed by the United States
of America by means of withholding at the source if and to the extent that such
taxes shall be in effect and shall be applicable, on the more recent to occur of
(x) the original issuance of the applicable Instrument, or (y) the date of
adjustment of the Note Rate or Certificate Rate applicable to such Instrument or
applicable interest therein in connection with the Secondary Transaction, to
payments to be made to such Instrument Holder or the Trustee, as the case may be
(all such non-excluded Taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Charges" and all such excluded
Taxes, levies, imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Excluded Charges"). If the Lessee or the Trustee
shall be required by Law to deduct any Charges from or in respect of any sum
payable hereunder or under any of the Transaction Documents to the Trustee or
any Instrument Holder (i) the sum otherwise payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 4.03) the Trustee or
such Instrument Holder (as the case may be) receives an amount equal to the sum
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it would have received had no such deductions been made, (ii) the Lessee or the
Trustee shall make such deductions, and (iii) the Lessee or the Trustee shall
pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable Law.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Lessee and/or the Trustee, as applicable, shall be entitled, to
the extent it is required to do so by law, to deduct or withhold income or other
similar taxes imposed by the United States of America on Net Rent, Contingent
Rent Payments, Offer Purchase Price, and Additional Rent, interest, current
yield, fees, principal and stated amounts of the Instruments or other amounts
payable hereunder or under the other Transaction Documents for the account of
the Trustee or any Instrument Holder (without the payment of increased amounts
to such Instrument Holder or the Trustee pursuant to subsection (a) above in the
case of Excluded Charges) other than the Trustee (or any successor thereto) or
an Instrument Holder (i) that is a domestic corporation for Federal income tax
purposes or (ii) which has filed with the Lessee and/or the Trustee all
applicable forms, affidavits, or certificates for the applicable year to the
extent deduction or withholding of such taxes is not required as a result of the
filing. If the Lessee or the Trustee shall so deduct or withhold any such taxes,
it shall provide a statement to the Lessee, Trustee and Agent, as applicable,
setting forth the amount of such taxes so deducted or withheld, the applicable
rate and any other information or documentation which such Instrument Holder or
the Trustee may reasonably request for assisting such Instrument Holder or the
Trustee to obtain any allowable credits or deductions for the taxes so deducted
or withheld in the jurisdiction or jurisdictions in which such Instrument Holder
is subject to taxes.
(c) In addition, the Lessee agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made hereunder or under the
Transaction Documents or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any of the Transaction Documents
(hereinafter referred to as "Other Taxes").
(d) The Lessee will indemnify the Trustee and each Instrument
Holder for the full amount of any Charges and Other Taxes (including, without
limitation, any Other Taxes imposed by any jurisdiction on amounts payable under
this Section 4.03) paid by the Trustee or such Instrument Holder (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto except as a result of the negligence or
willful misconduct of such Instrument Holder or the Trustee, as the case may be,
whether or not such Charges or Other Taxes were correctly or legally asserted.
Payments under this indemnification shall be made within thirty (30) days from
the date such Instrument Holder or the Trustee (as the case may be) makes
written demand therefor accompanied by reasonable substantiation of the
requested payment. Lessee shall not be responsible for any interest or penalties
in connection with such Charges or Other Taxes unless Lessee has been notified
of such Charges or Other Taxes as provided above at least thirty (30) days prior
to the imposition of any such interest or penalties (or, if later, within thirty
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(30) days after the Trustee or Instrument Holder, as applicable, obtained actual
knowledge that a Charge or Other Tax for which Lessee has responsibility
hereunder has been imposed).
(e) Within thirty (30) days after the date of the payment of
Charges by or at the direction of the Lessee, the Lessee will furnish to the
Trustee the original or a certified copy of a receipt evidencing payment
thereof. Should any Instrument Holder or the Trustee ever receive any refund,
credit or deduction from any taxing authority to which such Instrument Holder or
the Trustee would not be entitled but for the payment by the Lessee of Charges
as required by Section 4.03 (it being understood that the decision as to whether
or not to claim, and if claimed, as to the amount of any such refund, credit or
deduction shall be made by such Instrument Holder or the Trustee in its sole
discretion), such Instrument Holder or the Trustee thereupon shall repay to the
Lessee an amount with respect to such refund, credit or reduction equal to any
net reduction in taxes actually obtained by such Instrument Holder to the extent
attributable to such refund, credit or deduction.
(f) Without prejudice to the survival of any other agreement
of the Lessee hereunder, the agreements and obligations of the Lessee contained
in this Section 4.03 shall survive the payment in full of principal and stated
amount of and interest and current yield on the Instruments.
Section 4.04. Avoidance of Taxes, Other Charges and Increased Costs.
------------------------------------------------------
(a) Each Instrument Holder shall use reasonable efforts
(consistent with its internal policies and legal and regulatory restrictions) to
select a jurisdiction for its purchasing office or change the jurisdiction of
its purchasing office (or other office where its interest in the Instruments is
administered), as the case may be, so as to avoid the imposition of any
Increased Costs, Charges or Other Taxes or to eliminate any additional Increased
Costs, Charges or Other Taxes which may thereafter accrue; provided, that no
such selection or change of the jurisdiction for its purchasing or other office
shall be made if, in the reasonable judgment of such Instrument Holder, such
selection or change would be disadvantageous to such Instrument Holder.
(b) In the event that any Instrument Holder (other than CLI)
shall claim payment of any additional amounts pursuant to Section 4.03 or
payment of Increased Costs, the Lessee shall have the right, if no Incipient
Default or Event of Default exists, to replace such Instrument Holder with
another Approved Instrument Holder provided that such Approved Instrument Holder
unconditionally offers in writing (with a copy to the Trustee) to purchase, in
accordance with the provisions of Section 4.02, all of such Instrument Holder's
rights hereunder and under the Transaction Documents, including the Instruments
held by such Instrument Holder, without recourse, at the principal and stated
amount of such Instruments plus interest and current yield accrued thereon to
the date of such purchase on a date therein specified. If the Instrument Holder
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accepts such purchase offer and such purchase is consummated, the Lessee shall
be obliged to pay, simultaneously with such purchase and sale, the additional
amounts to such Instrument Holder pursuant to Section 4.03 and the Increased
Costs attributable to such Instrument Holder in the manner provided in the
Transaction Documents to the date of such purchase as well as all other amounts
due and payable under the Transaction Documents to or for the benefit of such
Instrument Holder; provided, that (x) if a Instrument Holder accepts such an
offer and such bank or financial institution fails to purchase such rights and
interest on such specified date in accordance with the terms of such offer, the
Lessee shall continue to be obliged to pay the additional amounts to such
Instrument Holder pursuant to Section 4.03 and to pay the Increased Costs
attributable to such Instrument Holder in the manner provided in the Transaction
Documents and (y) if such Instrument Holder fails to accept such purchase offer,
the Lessee shall not be obliged to pay such Instrument Holder such additional
amounts pursuant to Section 4.03 or the Increased Costs attributable to such
Instrument Holder from and after the date of such purchase offer.
Section 4.05. Sharing of Payments, Etc. If any Instrument Holder shall
obtain any payment (whether voluntary or involuntary), on account of the
Instruments held by it (other than on account of Reserve Costs, Break Costs, or
Increased Costs and other than pursuant to Section 4.03 or any indemnification
provision of the Transaction Documents) in excess of its ratable share of
payments on account of the Instruments obtained by all the Instrument Holders,
such Instrument Holders (or Agent on behalf of the Instrument Holders) shall
forthwith make appropriate payments or distributions to other Instrument Holders
calculated so that each Instrument Holder receives the benefit of its ratable
share of each payment.
Section 4.06. Instrument Holders' Credit Decisions. By its acceptance
of its Instruments each Instrument Holder (whether it acquires such Instrument
as a Purchaser or as an Assignee) acknowledges that it has, independently and
without reliance upon the Trustee, Agent, or any other Instrument Holder and
based on such financial statements and/or other documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement or to acquire an Instrument. Each Instrument Holder also
acknowledges that it will, independently and without reliance upon the Trustee,
Agent, or any other Instrument Holder and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions with respect to this Agreement or any of the other Transaction
Documents. Without limitation, each Instrument Holder acknowledges that it has
not relied upon statements or representations of Lessee regarding its financial
condition other than the financial information provided by Lessee to Agent in
connection with the execution of this Agreement, the specific representations
contained in the Transaction Documents, and where applicable, the financial
reports and information supplied by Lessee to Agent during the Term of the Lease
pursuant to the Lease, the Lease Guarantee, or the other Transaction Documents.
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ARTICLE V.
MISCELLANEOUS
-------------
Section 5.01. Survival. Except as otherwise expressly provided herein
or other applicable instrument or document, the parties' obligations under this
Agreement and in any certificate or other instrument delivered by any party or
on such party's behalf pursuant to this Agreement shall not survive payment in
full of all amounts due on the Notes and the Certificates and under any of the
Transaction Documents, the execution and delivery of any Transaction Document,
any issuance or disposition of any of the Instruments, any disposition of any
interest in the Property or the termination of any Transaction Document, and
shall continue in effect regardless of any investigation made by or on behalf of
any party hereto and notwithstanding that any party may waive compliance with
any other provision of any Transaction Document. However, it is expressly agreed
that all indemnification provisions for the benefit of Trustee, Agent,
Purchasers, and/or Instrument Holders provided herein or in any such other
instrument or document shall survive any such payments, whether or not expressly
so stated.
Section 5.02. Notices. Unless specifically otherwise provided, whenever
any of the Transaction Documents requires or permits any consent, approval,
notice, request, or demand from one party to another, the consent, approval,
notice, request, or demand must be in writing to be effective and shall be
deemed delivered one (1) Business Day after deposit with a nationally recognized
overnight courier service for overnight delivery addressed to the parties hereto
at the respective addresses specified below or at such other address as they may
specify by written notice. The address for each party for purposes hereof is as
follows:
Holders, Purchasers and Agent:
------------------------------
Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: EFL/CBL Credit Head
FAX No. 914/899-7308
with copies to:
Brown McCarroll & Oaks Hartline
300 Crescent Court
Suite 1400
Dallas, Texas 75201
Attention: Charles W. Morris, Esq.
FAX No. 214/999-6170
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Trustee:
--------
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, Massachusetts 02110
Attention: Donald E. Smith,
Vice President
FAX No. 617/664-5371
with copies to:
Bingham, Dana & Gould LLP
100 Pearl Street
Hartford, Connecticut 06103
Attention: James G. Scantling, Esq.
FAX No. 860/527-5188
and a courtesy copy to Agent at:
Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: EFL/CBL Credit Head
FAX No. 914/899-7308
Lessee:
-------
The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention: Michael Holden
Senior Vice President-Finance
FAX No. 215/227-9533
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with copies to:
The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention: Ronald M. Neifield, Esq.
Real Estate Counsel
FAX No. 215/229-5076
Notices sent by any other method (including certified mail, personal delivery,
or facsimile transmission) shall be deemed delivered when actually received by
the addressee. Any notice of change of address shall be effective only upon
actual receipt, regardless of delivery method, and such new address shall be
effective as to notices given by the other parties commencing ten (10) days
after such change of address notice is received by such parties. No party may
establish an official address for notice outside the continental United States.
Section 5.03. Severability. If any provision hereof or the application
thereof to any Person or circumstance shall be invalid, illegal or
unenforceable, the remaining provisions or the application of such provision to
Persons or circumstances other than those as to which it is invalid or
enforceable, shall continue to be valid and enforceable.
Section 5.04. Amendments, Etc. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Lessee therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Agent (with the consent of the Majority Holders), the Lessee and the Trustee,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given unless otherwise provided in such
written instrument.
Section 5.05. Headings. The table of contents and headings of the
Articles, Sections and subsections are for convenience only and shall not affect
the meaning of this Agreement.
Section 5.06. Definitions. Except as otherwise expressly provided,
capitalized terms used in this Agreement shall have the meanings given in
Schedule 1 hereto.
Section 5.07. Benefit. The parties hereto and their permitted
successors and assigns, but no others, shall be bound hereby and entitled to the
benefit hereof. Each registered assignee of a partial interest in an Instrument
(regardless of whether a New Instrument is issued to such assignee) shall be
treated as an Instrument Holder and shall be a beneficiary hereof; however, no
holder of a participation or other derivative interest in an Instrument shall be
a beneficiary hereof.
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Section 5.08. Place of Payment. The Trustee will cause all amounts to
be paid by Trustee which become due and payable on the Instruments to be paid by
bank wire transfer of immediately available funds or, at the option of such
Instrument Holder, such Affiliate, bank or institutional investor, by check of
the Agent, duly mailed, delivered or made at the address or account provided in
writing by such Instrument Holder to the Trustee and Agent.
Section 5.09. Counterparts. The parties may sign this Agreement in any
number of counterparts and on separate counterparts, each of which shall be an
original but all of which together shall constitute one and the same instrument.
Section 5.10. Governing Law; Venue.
---------------------
(a) THIS AGREEMENT AND ALL TRANSACTION DOCUMENTS SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
PENNSYLVANIA, WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES; PROVIDED THAT
TO THE EXTENT THAT A PORTION OF THE PROPERTY IS LOCATED IN A STATE OTHER THAN
THE STATE OF PENNSYLVANIA THE LAWS OF SUCH STATE SHALL GOVERN SUCH PROVISIONS,
IF ANY, OF THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, TO THE EXTENT THAT
THE STATE IN WHICH SUCH PORTION OF THE PROPERTY IS LOCATED REQUIRES THAT THE
LAWS OF SUCH STATE BE APPLIED THERETO, IN WHICH CASE AND TO SUCH EXTENT THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF SUCH STATE, IT IS EXPRESSLY AGREED,
HOWEVER, THAT IT IS THE DESIRE AND INTENT OF THE PARTIES THAT THE LAW OF THE
STATE OF PENNSYLVANIA GOVERN ALL PORTIONS OF THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS (UNLESS OTHERWISE EXPRESSED THEREIN) TO THE EXTENT THAT
SUCH INTENT MAY BE HONORED WITHOUT VIOLATION OF THE LAW OR PUBLIC POLICY OF THE
STATE IN WHICH ANY PORTION OF THE PROPERTY IS LOCATED. All references in this
Agreement or other Transaction Documents to "applicable Law" or terms of similar
import shall be interpreted consistent with the foregoing.
(b) Each of the parties hereto hereby submits to personal
jurisdiction in the State of Pennsylvania for the enforcement of its obligations
hereunder and under any and all other of the Transaction Documents and waives
any and all rights to be sued elsewhere. Each of the parties hereto hereby
acknowledges and agrees that the courts of the State of Pennsylvania are an
appropriate venue for any action, litigation or lawsuit filed in connection with
this Agreement or any of the other Transaction Documents.
Section 5.11. Business Day. If the date scheduled for any payment or
action under any Transaction Document shall not be a Business Day, then (unless
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such Transaction Document provides otherwise) such payment shall be made or such
action shall be taken on the next succeeding Business Day.
Section 5.12. The Trustee. Except for liability for the representations
and warranties made by Trust Company in its individual capacity in Section 2.02,
and for the gross negligence and willful misconduct of Trust Company, it is
expressly understood and agreed by the parties hereto that (a) this Agreement is
executed and delivered by Trust Company, not in its individual capacity but
solely as Trustee under the Declaration, in the exercise of the powers and
authority conferred and vested in it as the Trustee, (b) each of the
representations, undertakings and agreements herein made on the part of the
Trustee is made and intended not as personal representations, undertakings and
agreements by Trust Company, but is made and intended for the purpose of binding
only the Property created by the Declaration of Trust, (c) nothing herein
contained shall be construed as creating any liability on Trust Company,
individually or personally, to perform any covenant of the Trustee either
expressed or implied contained herein or in the Transaction Documents, all such
liability, if any, being expressly waived by the parties to this Agreement and
by any Person claiming by, through or under the parties to this Agreement, and
(d) under no circumstances shall Trust Company be personally liable for the
payment of any indebtedness or expenses of the Trustee or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Trustee under this Agreement or the other Transaction
Documents.
Section 5.13. Estoppel Certificates. At any party's request each other
party hereto will execute, acknowledge, and deliver a written statement,
addressed to such Person as the party making the request may reasonably
designate, certifying that this Transaction Agreement or other applicable
Transaction Document is unmodified and in full force and effect (or, if there
have been modifications, that this Transaction Agreement or other applicable
Transaction Document is in full force and effect as modified, and identifying
such modifications), and certifying to such other matters concerning the
Transaction as may reasonably be requested. In the case of Trustee or Agent, the
certificate shall state (in the case of Trustee, after consultation with Agent)
the amount of outstanding principal and accrued interest or stated amount and
accrued certificate yield, as applicable, due under the Instruments
Section 5.14. Transaction Documents; Further Assurances. Each of the
parties hereto does hereby covenant and agree to perform and be governed and
restricted by the Transaction Documents to which it is a party and, subject to
the terms and conditions thereof, to take or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable in
connection therewith. The Lessee, the Trustee, Agent, and the Purchasers will,
at the expense of the Lessee, execute and deliver such further instruments and
do such further acts as may be necessary or proper to carry out more effectively
the purposes of the Transaction Documents and the transactions contemplated
thereby. The Lessee, Agent, the Trustee, and the Purchasers may at any time,
subject to the conditions and restrictions contained in the Transaction
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Documents, enter into supplements which shall form a part hereof, when required
or permitted by any of the provisions of the Transaction Documents.
Section 5.15. Confidentiality. Each of the parties hereto (and any
Person that hereafter becomes an Instrument Holder) agrees that unless otherwise
required by Law or by any governmental authority or body or consented to by the
Lessee and CLI it will maintain the confidentiality of all non-public
information (i) regarding the financial terms of this transaction or (ii)
regarding the Lessee or the Property which shall be furnished to it by the
Lessee in connection with the transactions contemplated by the Transaction
Documents, in accordance with the procedures it generally applies to
confidential material. The parties hereto agree not to publish tombstones or
other public announcements in connection with the transactions contemplated
hereby without the consent of the Lessee and the Agent.
Section 5.16. Interest. It is the intention of the parties hereto to
conform strictly to usury Laws applicable to each Instrument Holder and the
Transactions. Accordingly, if the Transactions would be usurious as to any
Instrument Holder under Applicable Law, then, notwithstanding anything to the
contrary in the Instruments, this Agreement or in any other Transaction Document
or agreement entered into in connection with the Transactions, it is agreed as
follows: (i) the aggregate of all consideration which constitutes interest or
current yield as to any Instrument Holder under Applicable Law that is
contracted for, taken, reserved, charged or received by any Instrument Holder
under the Instruments, this Agreement or under any of such other Transaction
Documents or agreements or otherwise in connection with the Transactions shall
under no circumstances exceed the maximum amount allowed by such Applicable Law,
(ii) in the event that the maturity of the Instruments is accelerated for any
reason, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest or current yield as to any Instrument
Holder under Applicable Law may never include more than the maximum amount
allowed by such Applicable Law, and (iii) interest or current yield, if any, in
excess of that permitted by Applicable Law provided for in this Agreement or
otherwise in connection with the Transactions shall be, subject to the following
provisions, canceled automatically and, if theretofore paid, shall be credited
by such Instrument Holder on the principal or stated amount of the Instruments
(or, to the extent that the principal or stated amount of the Instruments shall
have been or would thereby be paid in full, refunded by such Instrument Holder
to the party entitled thereto). If at any time the amount or rate of interest or
yield (as applicable) contractually called for in any Instrument or other
Transaction Document (as the same may vary from time to time pursuant to the
terms of such Instrument or other Transaction Document, the "Stated Rate")
exceeds the maximum amount of interest or yield allowed by Applicable Law in
respect of such Instrument or other Transaction Document, then the rate of
interest or yield to accrue on such Instrument or other Transaction Document
shall be limited to the maximum amount allowed by such Applicable Law, but any
subsequent reduction in the Stated Rate applicable to such Instrument or other
Transaction Document shall not reduce the interest or yield to accrue on such
Instrument or other Transaction Document below the maximum amount allowed by
such Applicable Law until the total amount of interest or yield on such
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Instrument or other Transaction Document equals the amount of interest or yield
which would have accrued if the Stated Rate applicable to such Instrument or
other Transaction Document had at all times been in effect. If at the maturity
or final payment of any Instrument or other Transaction Document the total
amount of interest or yield paid or accrued on such Instrument or other
Transaction Document under the preceding sentence is less than the total amount
of interest or yield which would have accrued if the Stated Rate applicable to
such Instrument or other Transaction Document had at all times been in effect,
then to the fullest extent permitted by Applicable Law, there shall be due and
payable under, and to the Holders of, such Instrument or other Transaction
Document of an amount equal to the difference between (a) the lesser of (x) the
amount of interest or yield (as applicable) which would have accrued on such
Instrument or other Transaction Document if the maximum amount allowed by
Applicable Law had at all times been in effect and been chosen as the rate or
interest or yield to be applicable throughout the term of such Instrument or
other Transaction Document and (y) the amount of interest or yield (as
applicable) which would have accrued on such Instrument or other Transaction
Document if the Stated Rate applicable to such Instrument or other Transaction
Document had at all times been in effect, and (b) the amount of interest or
yield (as applicable) accrued in accordance with the provisions of such
Instrument or other Transaction Document after giving effect to the preceding
sentence. All sums paid or agreed to be paid to each Instrument Holder for the
use, forbearance or detention of sums included in the Instruments shall, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of the Instruments until payment in full so that the
rate or amount of interest on account of the Instruments does not exceed the
applicable usury ceiling, if any.
Section 5.17. Money. Unless stipulated otherwise, all references in any
of the Transaction Documents to "dollars," "money," "payments," or other similar
financial or monetary terms, are references to currency of the United States of
America.
Section 5.18.Number and Gender of Words. Whenever in any Transaction
Document the singular number is used, the same shall include the plural where
appropriate, and vice versa; and other words of any gender in any Transaction
Document shall include each other gender where appropriate. The words "herein"
and "hereunder," and other words of similar import, refer to the relevant
Transaction Document as a whole and not to any particular part or subdivision
thereof.
Section 5.19. Articles, Sections, Exhibits, and Schedules. All
references to "Article," "Articles," "Section," "Sections," "Subsection," or
"Subsections" contained in this Agreement are, unless specifically indicated
otherwise, references to articles, sections, and subsections of this Agreement.
All references to "Exhibits" and "Schedules" contained in this Agreement are
references to exhibits and schedules attached to this Agreement, all of which
are made a part of this Agreement for all purposes, the same as if set forth in
this Agreement verbatim, it being understood that if any Exhibit, which is to be
executed and delivered, contains blanks, the same shall be completed correctly
and in accordance with the terms and provisions contained and as contemplated in
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this Agreement prior to or at the time of, or after, the execution and delivery
thereof.
Section 5.20. Decisions of Parties. Except as expressly otherwise
provided herein, all opinions, approvals, decisions, and determinations are to
be in such party's discretion and need not be reasonable.
Section 5.21. Restructure of Transaction. Notwithstanding the
provisions of Section 13(b)(i)(B) or (C) of the Lease, in the event of the
occurrence of a change in GAAP or the interpretive rulings applicable
thereunder, or a change in SEC rulings and/or requirements, which in either case
requires the recharacterization of the Lease as a "capital lease" rather than an
"operating lease", Lessee may request that the transaction be restructured in a
manner that will maintain the economic interests of the parties and will permit
Lessee to continue to have the Lease treated as an "operating lease" for its
financial accounting purposes. If Lessee so requests, and Agent, CLI, all other
Purchasers, and the Majority Holders agree to such a restructure, then the
parties will proceed in good faith, but at Lessee's expense, to negotiate such
changes in the structure of the transaction and the Transaction Documents as the
parties may mutually determine to be necessary to effect such intention. While
the parties agree to cooperate in good faith to negotiate modifications to the
Transaction Documents to achieve operating lease treatment for the Lessee, no
party will be obligated to accept a restructure of the transaction and/or any
modification to any Transaction Document that is, in such party's opinion,
materially adverse to its legal or financial interest. In the event that the
parties are unable to agree to a restructuring or modification which is
acceptable to Lessee, Lessee shall be entitled to exercise the right set forth
in Section 13(b) of the Lease in accordance with the terms and conditions
therein contained.
Section 5.22. Construction of Agreement. Should any provision of this
Agreement require interpretation or construction in any judicial,
administrative, or other proceeding or circumstance, it is agreed that the
parties hereto intend that the court, administrative body, or other entity
interpreting or construing the same shall not apply a presumption that the
provisions hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be construed more strictly
against the party who itself or through its agents prepared the same, it being
agreed that the agents of both parties hereto have fully participated in the
preparation of all provisions of this Agreement and all of the Transaction
Documents.
THIS WRITTEN TRANSACTION AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 5.23. Brokers. Except to the extent of fees or other payments
specifically provided to be paid by Lessee under the Transaction Documents, each
party hereto shall pay or cause to be paid any and all valid claims of any
brokers or agents with whom such party has dealt who claim a right to any fees
or other compensation in connection with arranging the financing of the Property
provided hereby and shall indemnify, defend and hold all other parties hereto
harmless from such claims, whether or not they are valid.
Section 5.24. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, AND FOR THE PURPOSE OF REDUCING THE TIME AND EXPENSE OF
LITIGATION, THE PARTIES HERETO EACH WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT
ON, UNDER, OR BY VIRTUE OF THIS AGREEMENT, ANY OF THE TRANSACTION DOCUMENTS, OR
ANY OF THE TRANSACTIONS CONTEMPLATED OR GOVERNED THEREBY.
ARTICLE VI.
THE AGENT
---------
Section 6.01. Appointment.
------------
(a) The Purchasers and the Instrument Holders hereby designate
and appoint CLI as the initial administrative agent (herein "Agent") on behalf
of the Purchasers and the Instrument Holders, as applicable, under this
Agreement and the Transaction Documents. By its execution hereof CLI authorizes,
and by its execution of an Assignment Agreement and/or by its execution of a
supplement hereto becoming a Purchaser hereunder, each such additional Purchaser
and each such Instrument Holder hereby irrevocably authorizes the Agent to
perform the rights and obligations of the "Agent" hereunder and under the other
Transaction Documents. The Agent shall serve without compensation, except as
otherwise agreed in writing by the Lessee and the Majority Holders, but the
Agent shall be entitled to payment or reimbursement of its out-of-pocket
expenses incurred in the performance of its duties as provided for in the
applicable provisions of the Transaction Documents. Without limitation, to the
extent that any Transaction Document provides for the payment or reimbursement
of expenses incurred by the Purchasers or Instrument Holders, or any of them,
any such expenses incurred by the Agent in connection with such matters shall be
deemed to have been incurred by the Instrument Holders or Purchasers, as
applicable, and the Agent shall be entitled to the same reimbursement rights.
(b) In performing its functions and duties under this
Agreement, the Agent shall act solely as agent of the Purchasers or Instrument
Holders, as applicable (or in certain specified circumstances the Trustee), and
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does not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Lessee.
Section 6.02. Nature of Duties.
-----------------
(a) The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement or in the other Transaction
Documents. The Agent has a contractual obligation, as provided herein and in the
Transaction Documents, but shall not have by reason of this Agreement or any
other Transaction Document a trust or fiduciary relationship in respect of any
Instrument Holder. Nothing in this Agreement or any of the other Transaction
Documents, expressed or implied, is intended to or shall be construed to impose
upon the Agent any obligations in respect of this Agreement or any of the
Transaction Documents except as expressly set forth herein or therein.
(b) Each Purchaser and Instrument Holder shall make its own
independent investigation of the financial condition and affairs of Lessee in
connection with the Transactions contemplated hereunder and shall make its own
appraisal of the creditworthiness of Lessee, and the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Instrument Holder with any credit or other information with respect thereto,
whether coming into its possession before the Closing Date or at any time or
times thereafter. Each Purchaser and Instrument Holder acknowledges that neither
the Agent nor counsel to the Agent nor any other Instrument Holder is providing
any assurances, or shall have any responsibility, with respect to the ownership
of any Property or the absence of any Liens or defects of title, or the
authorization, execution, legality, sufficiency or effect of any Transaction
Document or any other document, or the validity, creation, perfection or
priority of any Right, or to investigate or not to investigate any of those
matters, and each Instrument Holder agrees to look solely to its rights as one
of the Instrument Holders with respect to any of the foregoing.
(c) The Agent may at any time request instructions from the
Instrument Holders or Purchasers, as applicable, with respect to any actions or
approvals which by the terms of this Agreement or of any of the other
Transaction Documents the Agent is permitted to take or to grant, and if such
instructions are promptly requested, the Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Transaction Documents until it shall
have received such instructions from the Majority Holders or Majority
Purchasers, as applicable. Without limiting the foregoing, no Instrument Holder
shall have any right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting under this Agreement, the Instruments, or
any of the other Transaction Documents in accordance with the instructions of
the Majority Holders or Majority Purchasers, as applicable.
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(d) If the Agent seeks the consent or approval of the
Instrument Holders or Purchasers (either collectively or with respect to any
particular series of Instruments) to the taking or refraining from taking any
action hereunder, the Agent shall send written notice thereof to each Instrument
Holder or Purchaser, as the case may be (either collectively or as to the
affected series, as applicable) based on the most recent information known to
Agent with respect to such ownership as set forth in the Register maintained by
the Agent. The Agent shall promptly notify each Instrument Holder or Purchaser,
as applicable, at any time that the Majority Holders or Majority Purchasers, as
applicable, have instructed the Agent to act or refrain from acting in any
particular manner pursuant hereto. Upon request Agent shall supply a copy of the
Register to Lessee.
(e) Whenever this Agreement or any other Transaction Document
requires that the Agent take action at the direction of the Majority Holders of
the Instruments or any particular series of Instruments, or at the direction of
the Majority Purchasers, then prior to taking the action in question (including,
without limitation, prior to giving directions to the Trustee in connection
therewith), Agent shall seek direction from the Instrument Holders (or
applicable series thereof) or Purchasers, as applicable, and shall take actions
or give directions consistent with the desires of the Majority Holders (with
respect to the applicable series thereof) or the Majority Purchasers, as
applicable. Where this Agreement or the other Transaction Documents do not
require approval of the Majority Holders or Majority Purchasers with respect to
any particular action or direction, then Agent may, but need not, seek input
from the Instrument Holders or Purchasers as to the appropriate course of
action, but in the absence of any such direction Agent shall be free to take
such actions as Agent may deem appropriate and in the best interests of the
Instrument Holders (or the applicable series thereof) or Purchasers, as
applicable, as a whole. In the exercise of its powers and rights hereunder Agent
shall exercise the same care as it exercises with respect to similar
transactions entered into solely for its own account and shall otherwise have no
liability or responsibility to the Instrument Holders or Purchasers except for
actions taken by Agent in bad faith, actions which are grossly negligent, or
actions which constitute willful misconduct by the Agent.
(f) The Majority Holders (either of the Instruments as a
whole, or of the applicable series of Instruments) shall at any time have the
right to direct the Agent in the exercise of any rights or options that may then
be available to the Instrument Holders of the Instruments (or the applicable
series thereof), and upon receipt of any such direction Agent shall proceed in
the manner directed by the Majority Holders; provided, that in no event shall
Agent have any obligation to proceed in any manner that Agent in good faith
believes may expose Agent to any risk or obligation unless and until Agent has
been provided by the Instrument Holders with security satisfactory to Agent to
protect Agent with respect to the risk or obligation in question. Similarly, the
Majority Purchasers shall at any time have the right to direct the Agent in the
exercise of any rights or options that may then be available to the Purchasers,
and upon receipt of any such direction Agent shall proceed in the manner
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directed by the Majority Purchasers; provided, that in no event shall Agent have
any obligation to proceed in any manner that Agent in good faith believes may
expose Agent to any risk or obligation unless and until Agent has been provided
by the Purchasers with security satisfactory to Agent to protect Agent with
respect to the risk or obligation in question.
(g) In its dealings with the Trustee, the Lessee, or the
Instrument Holders the Agent shall be protected in acting upon any written
notice, request, waiver, consent, certificate, receipt, authorization, power of
attorney, or other paper or document which Agent in good faith believes to be
genuine and what it purports to be.
(h) In the event of any good faith disagreement between any of
the parties to this Agreement resulting in adverse claims or demands being made
upon Agent, or if Agent, in good faith, is in doubt as to what action it should
take hereunder, Agent may, at its option, refuse to comply with any claims or
demands on it so long as such disagreement continues or such doubt exists, and
in any such event, Agent shall not be or become liable in any way or to any
person for its failure or refusal to act, and Agent shall be entitled to
continue so to refrain from acting until (i) the rights of all parties shall
have been fully and finally adjudicated by a court of competent jurisdiction or
(ii) all differences shall have been adjusted and all doubt resolved by
agreement among all of the interested persons and Agent shall have been notified
thereof in writing signed by all such persons. The rights of Agent under this
paragraph are cumulative of all other rights which it may have under law or
otherwise.
Section 6.03. Rights, Exculpation, etc. Neither the Agent nor any of
its Affiliates, officers, directors, employees, agents, attorneys or consultants
shall be liable to any Instrument Holder for any action taken or omitted by them
hereunder or under any of the Transaction Documents, or in connection herewith
or therewith, except that (i) the Agent shall be obligated on the terms set
forth herein for performance of its express obligations hereunder, and (ii)
Agent shall be liable to the Instrument Holders for damages caused by its gross
negligence in the discharge of its duties hereunder or its own willful
misconduct. The Agent shall not be responsible to any Instrument Holder for any
recitals, statements, representations or warranties herein or for the execution,
effectiveness, genuineness, validity, enforceability, collectability, or
sufficiency of this Agreement, or any of the other Transaction Documents, or any
of the transactions contemplated hereby and thereby, or for the financial
condition of Lessee. The Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any of the Transaction Documents or the
financial condition of Lessee, or the existence or possible existence of any
Incipient Default or Event of Default.
Section 6.04. Reliance. The Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Transaction Documents and its
duties hereunder or thereunder, upon advice of legal counsel, independent public
43
<PAGE>
accountants and other experts selected by it. Lessee and Trustee shall be
entitled to rely upon any written notices, requests, waivers, consents,
receipts, authorizations, powers of attorney, statements, certificates, orders,
approvals, directions, or other documents or matters issued by or from Agent and
shall be entitled to give notices to, make requests of and otherwise deal solely
with Agent, as administrative agent for the Holders, the Purchasers and the
Trustee, as the case may be, except as expressly provided herein.
Section 6.05. Indemnification. To the extent that the Agent is not
reimbursed and indemnified by the Lessee in accordance with the express terms of
the Transaction Documents, or Lessee fails upon demand by the Agent to perform
its obligations to reimburse or indemnify the Agent, the Instrument Holders will
reimburse and indemnify the Agent for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent or in any way relating to or
arising out of this Agreement or any of the other Transaction Documents or any
action taken or omitted by the Agent under this Agreement or any of the other
Transaction Documents, in proportion to their respective proportions of the
principal amount of Notes and outstanding amounts of Certificates; provided that
no Instrument Holder shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct. The obligations of the Instrument Holders under this Section shall
survive the discharge in full of the Instruments. If the Agent is or becomes a
Instrument Holder, the Agent shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Instrument Holder. The terms
"Instrument Holder" or "Majority Holder" or any similar terms shall, unless the
context clearly otherwise indicates, include the Agent in its individual
capacity as a Instrument Holder or one of the Majority Holders. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of banking, trust or other business with Lessee as if it were not
acting as Agent pursuant hereto.
Section 6.06. Successor Agent; Resignation of Agent.
--------------------------------------
(a) The Majority Holders may, at any time by written notice to
Lessee, Trustee, and the Agent then serving, designate a successor Agent, with
or without cause; provided, however, that so long as CLI has an outstanding
Commitment hereunder, the Agent shall not be removed, except for cause, without
the approval of CLI. For this purpose, "cause" shall mean the gross neglect by
Agent of its duties hereunder. Any such successor Agent shall have all rights,
powers, and duties assigned to the "Agent" hereunder from and after the
effective date of its appointment. Except in cases where the Agent is being
replaced as a result of a material default or dereliction of its duties by the
existing Agent, the effective date of the appointment of a successor Agent shall
be not less than thirty (30) days after the notice of appointment of the
successor Agent is given.
44
<PAGE>
(b) The Agent may resign at any time upon written notice given
to the Lessee, the Trustee, and each Instrument Holder. The effective date of
the resignation shall be not less than sixty (60) days after the notice of
resignation is given. In the event of any such resignation by Agent, the
Majority Holders shall promptly appoint a successor agent and, if no successor
agent is so appointed within thirty (30) days thereafter the Agent shall be (i)
the Purchaser with the largest outstanding Commitment, or (ii) if no Commitment
remains outstanding hereunder, the Instrument Holder that holds the largest
aggregate amount of Instruments (measured by dollar amount).
(c) In the event of the appointment of a successor Agent
(whether as a result of the resignation of the previous Agent or otherwise), the
outgoing Agent shall reasonably cooperate with the successor Agent, the Trustee,
the Purchasers, Lessee, and the Instrument Holders to provide for a smooth
transition of the function of the Agent hereunder. Any books and records of the
outgoing Agent relating to its service as Agent hereunder (but not books and
records relating to any Instruments that the outgoing Agent may hold for its own
account) shall be turned over to the successor Agent.
Section 6.07. Authorization to Act as Agent of Trustee. In addition,
the Trustee hereby appoints and authorizes the Agent to collect, disburse,
invest and otherwise administer on the Trustee's behalf all funds paid or
payable to the Trustee hereunder or under any of the Transaction Documents, in
each case, in accordance with the terms hereof and thereof, and the Trust
Company, in its individual capacity, shall not be liable for the actions or
inactions of the Agent in connection with the Agent's collection, disbursement,
investment and administration of such funds. As to any matters not expressly
provided for by this Agreement or the other Transaction Documents, the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority
Purchasers or the Majority Holders, and such instructions shall be binding upon
all Purchasers or Holders, as applicable; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or applicable Law.
IN WITNESS WHEREOF, intending to be legally bound hereby, the
parties have caused this Agreement to be duly executed on the attached Signature
Pages by their respective officers thereunto duly authorized as of the day and
year first above written.
[SEE ATTACHED SIGNATURE PAGES]
45
<PAGE>
SIGNATURE PAGE OF LESSEE AND LESSEE PARENT
ATTACHED TO
TRANSACTION AGREEMENT
(1997 PEP BOYS II LEASED PROPERTY)
LESSEE AND LESSEE PARENT:
-------------------------
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By________________________________________
Name:_____________________________________
Title:____________________________________
46
<PAGE>
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
TRANSACTION AGREEMENT
(1997 PEP BOYS II LEASED PROPERTY)
TRUSTEE:
--------
STATE STREET BANK AND TRUST
COMPANY, a Massachusetts
trust company (not in its
individual capacity, but
solely as Trustee)
By________________________________________
Name:_____________________________________
Title:____________________________________
TRUST COMPANY:
--------------
STATE STREET BANK AND TRUST
COMPANY, a Massachusetts
trust company (in its
individual capacity, but
only as expressly stated
herein)
By________________________________________
Name:_____________________________________
Title:____________________________________
47
<PAGE>
SIGNATURE PAGE OF CLI,
AS AGENT, PURCHASER AND INSTRUMENT HOLDER
ATTACHED TO
TRANSACTION AGREEMENT
(1997 PEP BOYS II LEASED PROPERTY)
AGENT, PURCHASER and
INSTRUMENT HOLDER:
--------------------
CITICORP LEASING, INC.,
a Delaware corporation
By________________________________________
Name:_____________________________________
Title:____________________________________
48
<PAGE>
SIGNATURE PAGE OF BANK OF MONTREAL,
AS PURCHASER AND INSTRUMENT HOLDER
ATTACHED TO
TRANSACTION AGREEMENT
(1997 PEP BOYS II LEASED PROPERTY)
PURCHASER and INSTRUMENT HOLDER:
--------------------------------
BANK OF MONTREAL
By________________________________________
Name:_____________________________________
Title:____________________________________
49
<PAGE>
SCHEDULE 1
Certain Definitions
As used herein, the following terms have the meanings indicated:
"A-Note" means any of, and "A-Notes" means all of, the Series A Trust
Notes, due on the Maturity Date issued and, unless otherwise specified or the
context otherwise requires, outstanding under the Declaration of Trust.
"Acquisition Price" shall have the meaning provided therefor in Exhibit
A attached to the Lease.
"Advance" and "Advances" shall have the meaning provided therefor in
Section 1.01(c).
"Affiliate" means a Person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with the
Person in question. The term "control," as used in the immediately preceding
sentence, means, with respect to a Person that is a corporation, the right to
exercise, directly or indirectly, more than ten percent (10%) of the voting
rights attributable to the shares of the controlled corporation and, with
respect to a Person that is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled Person.
"Agent" means the administrative agent for the Instrument Holders and
Purchasers appointed from time to time under this Agreement. CLI is the initial
Agent appointed under this Agreement.
"Agreement" means this Transaction Agreement, as it may be amended,
modified, supplemented, renewed, extended, and/or restated, from time to time,
it being acknowledged and agreed that the parties may elect, by mutual
agreement, to amend this Agreement to increase the amount of Advances available
to Trustee hereunder, but expressly acknowledging that Purchasers have not
agreed, and have no obligation whatsoever to do so under any circumstances.
"Applicable Rate" shall have the meaning provided therefor in the
Lease.
"Approved Purposes" means (i) the purchase price paid by Trustee from
time to time to acquire portions of the Property, (ii) amounts advanced from
time to time by Trustee to Lessee in respect of Construction Advances
(including, without limitation, Interim Advances) under the Lease, and (iii)
reasonable costs and expenses incurred in connection with the purchase of the
Property and/or the closing of the transactions contemplated hereby from time to
time, all as properly substantiated to, and approved by, Agent.
<PAGE>
"B-Note" means any of, and "B-Notes" means all of, the Series B Trust
Notes, due on the Maturity Date, issued and, unless otherwise specified or the
context otherwise requires, outstanding under the Declaration of Trust.
"Bankruptcy Code" means Title 11 of the United States Code, as amended
from time to time.
"Break Costs" shall mean an amount equal to the amount (if any)
required to compensate any Instrument Holder for any additional losses
(including, without limitation, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or funds acquired by such Instrument Holder to fund or maintain any
Instrument) it may reasonably incur as a result of the payment of the principal
balance of a Note or the stated amount of a Certificate, as applicable, on any
date other than a Payment Date.
"Business Day" means every day on which banks in the Cities of New
York, New York, Chicago, Illinois, Boston, Massachusetts, and Philadelphia,
Pennsylvania, are open for business and are not required to be closed.
"Certificate" means any of, and "Certificates" means all of, the Series
C Trust Certificates, due on the date of the expiration or termination (for any
reason) of the Lease, issued, and unless otherwise specified or the context
otherwise requires, outstanding under the Declaration of Trust.
"Certificate Holder" means any of, and "Certificate Holders" means all
of, the Holders from time to time of the Certificates.
"Certificate Rate" means, with respect to each Certificate or an
applicable portion thereof and with respect to each day during an Interest
Period, a rate per annum determined for such day equal to the LIBO Rate, plus
the Spread applicable to such Certificate or portion thereof.
"Commitment" means, with respect to a Purchaser, the amount of such
Purchaser's commitment to make Advances pursuant to Section 1.01 of this
Agreement. In the case of the original Purchasers the amount of their respective
Commitments is specified in subsections 1.01(a) and (b) hereof; in the case of
any subsequent Purchaser(s) the amount of its Commitment shall be specified as
provided for in subsections 1.01(f) and (g) hereof.
"Construction Advance" and "Construction Advances" shall have the
meanings provided therefor in Section 1.01(d) hereof.
"Construction Supplement" and "Construction Supplements" shall have the
meanings provided therefor in Section 1.01(d) hereof.
<PAGE>
"Debt Rating" means, as of any date, the then current rating issued by
Standard & Poor's Corporation for Lessee's senior unsecured debt, or if Lessee
then has no senior unsecured debt rated by Standard & Poor's Corporation, such
other rating (including, without limitation, a rating issued by another rating
service if any such rating is then available or a rating determined by the
internal analysts of Agent or an Affiliate of Agent) as Agent may deem most
closely corresponds thereto.
"Debtor Relief Laws" means the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief Laws from time to time in effect affecting the Rights of creditors
generally.
"Declaration" or "Declaration of Trust" means that certain Declaration
of Trust of even date herewith executed by Trustee with respect to the Property
and the Transactions contemplated hereby, as amended, restated, supplemented, or
otherwise modified from time to time.
"Default Rate" means the lesser rate per annum of (i) two percent (2%)
in excess of the effective prime interest rate quoted by Citibank, N.A., from
time to time in effect as its base or reference rate for short-term floating
rate commercial loans (whether or not such rate is actually charged in any
particular instance), or (ii) the Maximum Rate.
"Environmental Indemnity Agreement" means collectively that certain
Environmental Indemnity Agreement of even date herewith executed by Lessee (and
the other lessees under the Lease) for the benefit of Trustee, Agent and the
Instrument Holders, as amended, restated, supplemented, or otherwise modified
from time to time.
"Event of Default" has the meaning given thereto in the Lease.
"Fee Letter" means that certain letter dated January 10, 1997, from
Trust Company to Lessee describing certain costs and charges to be paid to Trust
Company in connection herewith.
"Hold Position" has the meaning provided therefor in Section 1.01(a)
hereof.
"Holder" has the same meaning as "Instrument Holder."
"Improvements" has the meaning provided therefor in the Preliminary
Statement hereof.
"Increased Costs" means any additional amounts required to be paid to
any Instrument Holder to compensate such Instrument Holder for any increased
costs of maintaining the Instrument (the effect of which is not included in the
applicable Instrument Holder's determination of such costs at the more recent to
occur of the original issuance of such Instrument or the adjustment of the Note
Rate or Certificate Rate applicable to such Instrument or applicable interest
therein in connection with the Secondary Transaction (as defined in the Lease)
<PAGE>
as a result of the implementation after the date hereof of any applicable Law
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Instrument Holder (or any lending office thereof)
with any request or directive regarding capital adequacy (whether or not having
the force of Law) of any such authority, central bank or comparable agency which
has the effect of increasing the amount of capital required or expected to be
maintained as a result of its maintaining the Instrument.
"Instrument" means any of, and "Instruments" means all of,
collectively, the Notes and the Certificates.
"Interim Advance" and "Interim Advances" shall have the meanings
provided therefor in Section 1.01(d) hereof.
"Interim Supplement" and "Interim Supplements" shall have the meanings
provided therefor in Section 1.01(d) hereof.
"Instrument Holder" or "holder" when used with respect to any
Instrument(s), means the Person whose name appears on the Register as the
registered owner of such Instrument(s) or the registered assigns of a portion of
an Instrument, as applicable. It is acknowledged that each Purchaser shall be an
Instrument Holder for all purposes hereof (until such time as it has disposed of
all of its Instruments) and entitled to the benefit of all provisions hereof
respecting the Instrument Holders, in addition to and not in lieu of, its rights
as the Purchaser hereunder.
"Interest Period" means, as applicable to an Instrument, (i) the period
commencing on the date of the first Advance under such Instrument through the
day immediately preceding the first Payment Date, or (ii) the period commencing
on any Payment Date through the day immediately preceding the next Payment Date.
"Law" or "Laws" means, either singularly or collectively, as
applicable, all applicable statutes, laws, ordinances, regulations, orders,
writs, injunctions, decisions, opinions or decrees of any governmental authority
or any Tribunal.
"Lease" means, collectively, that certain Master Lease of even date
herewith, executed by Trustee, as lessor, and Lessee, as lessee, covering
portions of the Property, together with such supplements or amendments thereto
as may be executed from time to time by Lessee (or any Additional Lessees) and
Trustee and approved by Agent, including, without limitation, supplements
thereto adding Parcels to the Property or "Additional Lessees" as a party to the
Lease.
"Lease Guarantee" means that certain Lease Guarantee of even date
herewith executed by Lease Guarantor with respect to the Lease, as amended,
restated, supplemented, or otherwise modified from time to time.
<PAGE>
"Lease Guarantor" means The Pep Boys - Manny, Moe & Jack, a
Pennsylvania corporation.
"Lessee" means The Pep Boys - Manny, Moe & Jack, a Pennsylvania
corporation, its permitted successors and assigns. For purposes of this
Agreement any other Person that is a party to the Lease shall not be treated as
"Lessee" unless the context otherwise requires.
"Lessee's Equipment" shall have the meaning given to such term in the
Lease.
"LIBO Business Day" means a day of the year on which dealings are
carried on in the London interbank market and banks are open for business in
London and not required or authorized to close in New York City.
"LIBO Rate" for each Interest Period means an interest rate per annum
equal to the average (rounded, if necessary, to the next highest 1/16 of 1%) of
the rates of interest per annum at which deposits in United States dollars are
offered to prime banks in the London interbank market at 11:00 a.m. (London
time) two LIBO Business Days before the first day of such Interest Period (the
"LIBO Rate Setting Date") for a period equal to such Interest Period.
"LIBO Rate Reserve Percentage" for any Interest Period means the
reserve percentage applicable to the Instrument Holders during such Interest
Period under the regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or if more than one such percentage is so
applicable, the daily average for such percentages for those days in such
Interest Period during which any such percentages shall be so applicable) for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental to other marginal reserve requirement) for Instrument
Holders in respect of liabilities or assets consisting of or including
Eurocurrency Liabilities (as defined in Regulation D of the Board of Governors
of Federal Reserve System as in effect from time to time) having a term equal to
such Interest Period.
"Lien" means any lien, mortgage, security interest, pledge, charge,
easement or encumbrance (excluding any transfer, assignment, or sublease
permitted under Section 17 of the Lease, or any lien on Lessee's Equipment) of
any kind, including, without limitation, a mechanic's lien, a materialman's
lien, the rights of a vendor, lessor, or similar party under any conditional
sales agreement or other title retention agreement or lease substantially
equivalent thereto, any production payment, and any other right of or
arrangement with any creditor to have his claim satisfied out of any property or
assets, or the proceeds therefrom, prior to the general creditors of the owner
thereof.
"Litigation" means any proceeding, claim, and/or lawsuit conducted by
or before any Tribunal.
"Majority Holders" means: (i) with respect to any series of
Instruments, the registered Holders of at least sixty-six and two-thirds percent
(66-2/3%) in aggregate principal or stated amount of such series of Instruments
<PAGE>
then outstanding; and (ii) with respect to more than one series of Instruments,
the registered Holders of at least sixty-six and two-thirds percent (66-2/3%) of
the total aggregate principal and stated amounts of such series of Instruments
then outstanding.
"Majority Purchasers" means the Purchaser(s) whose aggregate
outstanding Commitment at any relevant time is at least sixty-six and two-thirds
percent (66-2/3%) of the aggregate outstanding Commitments of all Purchasers.
"Master Schedule" shall have the meaning provided therefor in the
Declaration of Trust.
"Maturity Date" shall mean August 31, 2003.
"Maximum Rate" means the maximum nonusurious interest rate, if any,
that at any time or from time to time may be contracted for, taken, reserved,
charged or received on any Note, Certificate, or other applicable obligation, as
the case may be, under the Law of the State of Pennsylvania, or, if Pennsylvania
Law is pre-empted thereby, the Law of the United States of America applicable to
the Holders and the Transactions that would permit Holders to lawfully contract
for, charge, take, reserve or receive a greater amount of interest than that
permitted under Pennsylvania Law.
"New Improvements" shall have the meaning provided therefor in the
Lease.
"Note" means any of, and "Notes" means all of, collectively, the
A-Notes and the B-Notes outstanding under the Declaration of Trust.
"Note Rate" means, with respect to each Note or an applicable portion
thereof and with respect to each day during an Interest Period, a rate per annum
determined for such day equal to the LIBO Rate, plus the Spread applicable to
such Note or portion thereof.
"Noteholders" means, in the aggregate, the Holders at the time in
question of all of the Notes then outstanding (or, if applicable, the series of
Notes in question).
"Outside Funding Date" has the meaning provided therefor in Section
1.05(e) hereof.
"Parcels" means any tracts or parcels of real property that may
hereafter be added to the Property, together with any and all structures,
buildings, fixtures, or other improvements from time to time located thereon and
any and all appurtenances thereto; provided, that such term does not include
Lessee's Equipment or any other trade fixtures, inventory, or other items of
personal property located on such parcels that are owned by any other Person
other than Trustee. Nothing in the foregoing definition or applicable provisions
of this Agreement shall be deemed to limit or restrict Lessee's rights to
demolish improvements located on Parcels at the time such Parcel is added to the
Property in connection with the construction of New Improvements on the Parcel,
to the extent permitted by the express terms of the Lease.
<PAGE>
"Payment Date" means the first day of each calendar month to and
including the month in which the Maturity Date falls, as well as the Maturity
Date itself; provided, however, that if such Payment Date is not a Business Day,
such Payment Date shall be the next succeeding Business Day.
"Pep Boys I Facility" means that certain asset defeasance lease
facility created pursuant to that certain Transaction Agreement dated November
13, 1995, by and among Lessee, Trustee and CLI, that certain Declaration of
Trust dated November 13, 1995, executed by Trustee, and that certain Master
Lease dated November 13, 1995, by and between Trustee and Lessee.
"Percentage" means, relative to any Purchaser and any series of
Instruments, the percentage equal to the ratio of such Purchaser's Commitment in
respect of that series of Instruments to the total Commitments of all Purchasers
in respect of that series of Instruments.
"Permitted Encumbrances" shall have the meaning provided therefor in
the Lease.
"Person" means any individual, firm, corporation, association,
partnership, joint venture, other entity, or Tribunal.
"Plans" shall have the meaning provided therefor in the Lease.
"Property" shall have the meaning provided therefor in the Lease.
"Purchaser" means any Person having a Commitment hereunder.
"Reserve Costs" means, so long as Instrument Holders hereafter shall be
required under regulations of the Board of Governors of the Federal Reserve
System to maintain reserves in excess of those maintained at the more recent to
occur of the original issuance of the applicable Instrument or the adjustment of
the Note Rate or Certificate Rate applicable to such Instrument or the
applicable interest therein in connection with the Secondary Transaction with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional amounts equal to the product of (1) the outstanding
balance of the Instruments, multiplied by (2) an interest rate per annum equal,
at all times during the period in which such reserves were assessed, to the
remainder obtained by subtracting (a) the LIBO Rate for such Interest Period
from (b) the rate obtained by dividing such LIBO Rate applicable during such
Interest Period by a percentage equal to 100% minus the applicable LIBO Rate
Reserve Percentage, payable on each Payment Date.
"Rights" means rights, remedies, powers, and privileges.
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
"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 Spread
-------------------- ------
BBB+ (or higher) 37.5 basis points (0.375%)
BBB 42.5 basis points (0.425%)
BBB- 52.5 basis points (0.525%)
less than BBB- 75.0 basis points (0.75%)
"Taxes" means all taxes, assessments, fees, levies, impositions,
duties, deductions, withholdings, or other charges of any nature whatsoever from
time to time or at any time imposed by any Laws or by any Tribunal as well as
any other item included within the term "Impositions" under the Lease.
"Term" shall have the meaning provided therefor in the Lease.
"Title Company" means one or more title insurance companies reasonably
acceptable to Agent which shall issue the Title Policies.
"Title Policies" means, collectively, (A) one or more Owner's Title
Insurance Policies (collectively, the "Owner's Title Policy") issued to Trustee
by the Title Company, in the aggregate amount of the Advances hereunder,
insuring that Trustee owns fee simple title to the Property, subject to no
exceptions other than the Permitted Encumbrances, and (B) one or more Mortgagee
Title Insurance Policies (collectively, the "Mortgagee Title Policy") issued to
Agent (for the benefit of the Noteholders) by the Title Company, in the
aggregate amount of the Notes issued hereunder, insuring that the Transaction
Mortgage is a first mortgage lien on fee simple title to the Property subject to
no exceptions other than the Permitted Encumbrances. Each of the Owners Title
Policy and the Mortgagee Title Policy shall provide such other coverages as
Agent may reasonably require and as may be available from time to time. The
parties acknowledge that the Title Policies will be a series of separate
policies in the aggregate required amount, with such separate policies providing
coverage in the amount of the respective Acquisition Prices (in the case of the
Owner's Title Policy) or the relevant Note amounts attributable to the Parcels
covered (in the case of the Mortgagee Title Policy) of the respective Parcels of
Property from time to time subject to this Agreement. The term "Title Policy"
shall include any endorsements to previously issued title insurance policies
that the Purchaser may deem appropriate in connection with any Advance, and any
endorsements that Lessee may cause to be provided to insure over title problems
that can not be removed where Lessee is permitted to do so under the terms of
the Lease or this Agreement.
<PAGE>
"Transaction Documents" means this Agreement, the Lease, the Lease
Guarantee, the Declaration of Trust, the Environmental Indemnity Agreement, the
Instruments and any and all other agreements, documents, and instruments
executed and delivered to or for the benefit of Trustee, Purchasers, or
Instrument Holders by pursuant to the terms of, or otherwise in connection with,
this Agreement, and any future amendments hereto or restatements hereof, or
pursuant to the terms of any of the other Transaction Documents, together with
any and all renewals, extensions, and restatements of, and amendments and
modifications to, any of the foregoing.
"Transaction Mortgage" means one or more mortgages, deeds of trust,
deeds to secure debt, or similar security instruments executed by Trustee and
granting to Agent, for the benefit of the Noteholders (but not the Certificate
Holders), a first mortgage lien on the Property and each Parcel thereof. The
Transaction Mortgage shall, as to each Parcel, be in form and substance
acceptable to Agent and shall be subject to no liens or encumbrances other than
the Permitted Encumbrances.
"Transactions" means the transactions provided for in and contemplated
by this Agreement and the other Transaction Documents.
"Tribunal" means court, department, commission, board, bureau, agency,
or instrumentality of any governmental authority.
"Trust Estate" shall have the meaning provided therefor in the
Declaration of Trust.
<PAGE>
SCHEDULE 2
Underwriting Guidelines
1. TITLE MATTERS.
--------------
1.1 The title insurance required by Agent and Trustee for any Parcel
shall be that which is customary in the jurisdiction in which the Parcel is
located for institutional investors and lenders in large commercial
transactions. Agent and Trustee shall be reasonable in negotiating and agreeing
to title insurance coverage.
1.2 Reinsurance or coinsurance will not be required if (1) the amount
to be insured for the Parcel, following completion of all Improvements, is less
than $ 4,000,000.00 and (2) one of the following title insurance companies is
the title insurer: Chicago Title Insurance Corporation (or one of its wholly
owned affiliates, such as TICOR or Safeco), Commonwealth Land Title Insurance
Corporation, First American Title Insurance Corporation, Lawyers Title Insurance
Corporation, Old Republic/Minnesota or Stewart Title (any of the foregoing being
an "Acceptable Insurer"). Agent and/or Trustee shall have the right to remove
any title insurer from the above list at any time hereafter with respect to
closings on Parcels not then acquired, based on its reasonable determination
that such title insurer's financial rating has been reduced to an unacceptably
low level.
1.3 In the event that any mechanics' lien, suppliers' lien, or similar
lien is placed against any Parcel, Lessee shall have the right to satisfy Agent
and/or Trustee with respect to such lien by, among other means, providing Agent
and/or Trustee with affirmative title insurance coverage over such lien
delivered by an Acceptable Insurer which is insuring the Parcel in question.
2. ENVIRONMENTAL REPORTS.
----------------------
2.1 Each environmental report shall be addressed to Agent, Trustee and
Lessee, as follows:
"To Citicorp Leasing, Inc. ("Agent"), for itself and in its
capacity as Agent for the Purchasers and Instrument Holders
under the Transaction Agreement dated __________, 1997, among
Agent, Trustee (as defined below), The Pep Boys - Manny, Moe
and Jack, a Pennsylvania corporation (the "Transaction
Agreement"), State Street Bank and Trust Company, as Trustee
under the Declaration of Trust dated __________, 1997
("Trustee") and [insert proper Pep Boys entity]"
<PAGE>
2.2 A reference in an environmental report to the existence of
asbestos, PCBs, lead paint or other hazards located within a building or other
structure that is intended to be demolished or substantially renovated and
improved, shall not be regarded as an impediment to going forward with the
transaction, or to the acquisition of the Parcel by the Trustee, or the funding
of any Advance, so long as (1) prior to the acquisition of the Parcel in
question, Lessee demonstrates to the reasonable satisfaction of Agent and
Trustee that the plans for the demolition and/or improvement of the Parcel
include provisions satisfactory to Agent and Trustee for the removal, abatement
and proper disposal of such materials, in accordance with all applicable Laws,
and (2) prior to the Construction Advance for any such Parcel, Lessee provides
Agent and Trustee with evidence of such removal, abatement and disposal, and for
payment therefor.
2.3 Nothing in the foregoing shall require Agent or Trustee to accept a
Parcel with respect to which the environmental report shows evidence of
underground or soil hazards, such as underground tanks, soil or groundwater
contamination or other problems requiring remediation.
3. SURVEY.
-------
3.1 The survey shall, at a minimum, satisfy the following
requirements unless otherwise approved by Agent:
3.1.1 The surveyor should perform all necessary field work,
field-stake the property, and supply a current plat of survey (the
"Survey") of the property.
3.1.2 Without limitation of other applicable requirements, the
Survey must:
(i) Set forth an accurate metes and bounds
description of the land, as well as a lot/block description
if the property is platted;
(ii) Locate all existing easements (setting forth
recording information with respect to recorded easements and
locating recorded easements per the legal description
contained therein), alleys, streets, and roads;
(iii) Show any encroachments on to the land from any
adjacent property, any encroachments from the land on to
adjacent property, and any encroachments into any easement or
restricted area within the boundaries of the land;
(iv) Locate all existing improvements (such as
buildings, power lines, fences, and the like);
(v) Locate all dedicated public streets or other
roadways providing access to the land, including all curb
cuts;
<PAGE>
(vi) Locate all governmental or privately required
setback lines and similar restrictions affecting the land or
any part thereof and any violations of such restrictions; and
(vii) Set forth the gross square foot area of the
land, together with the net square foot area of the land which
shall be the gross square foot area of the land less any area
of the land located within (A) streets or roadways, or (B)
encroachments, overlaps, or strips, gores or other areas
affected by discrepancies in legal descriptions.
3.2 The Survey should contain a certification with regard to the
matters set forth thereon substantially as follows:
"The undersigned Registered Public Surveyor (the "Surveyor")
hereby certifies that (a) this plat of survey and the property
description set forth hereon are true and correct and prepared
from an actual on-the-ground survey of the real property (the
"Property") shown hereon; (b) such survey was conducted by the
Surveyor, or under his supervision; (c) all monuments shown
hereon actually exist, and the location, size and type of
material thereof are correctly shown; (d) except as shown
hereon, there are no encroachments onto the Property or
protrusions therefrom, there are no improvements on the
Property, there are no visible easements or rights-of-way of
the Property and there are no visible discrepancies,
conflicts, shortages in area or boundary line conflicts; (e)
the size, location and type of improvements are as shown
hereon (including, without limitation, the parking lots and
other parking areas indicating the number of parking spaces
within each), and, except as shown hereon, all are located
within the boundaries of the Property and set back from the
Property lines the distances indicated; (f) the distance from
the nearest intersecting street or road is as shown; (g) the
Property has access to and from a public roadway; (h) except
as shown hereon all recorded easements have been correctly
platted hereon; (i) the boundaries, dimensions and other
details shown hereon are true and correct; and (j) except as
shown hereon the Property is not located in a 100-Year Flood
Plain or in an identified "flood prone area", as defined by
the U. S. Department of Housing and Urban Development,
pursuant to the Flood Disaster Protection Act of 1973, as
amended.
"The undersigned does further certify that the survey was made
in accordance with the "Minimum Standard Detail Requirements
of the ALTA/ACSM Land Title Surveys, jointly established by
<PAGE>
ALTA and ACSM in 1992, and includes items 1, 2, 3, 4, 6, 7(a),
8, 9, 10, and 13 of Table A thereof, and is prepared to the
ALTA/ACSM accuracy standards (as adopted and in effect on the
date of this certification) of an Urban Survey.
"The Surveyor expressly understands and agrees that (a)
("Title Company"), Citicorp Leasing, Inc. ("Agent"), for
itself and in its capacity as Agent for the Purchasers and
Instrument Holders under the Transaction Agreement dated
___________, 1997, among Agent, Trustee (as defined below),
The Pep Boys - Manny, Moe and Jack, a Pennsylvania corporation
(the "Transaction Agreement"), State Street Bank and Trust
Company, as Trustee under the Declaration of Trust dated
_________, 1997 ("Trustee"), and [insert proper Pep Boys
entity] are entitled to rely on this plat of survey as being
true and accurate in all respects and this Certificate as
being true and accurate; and (b) the consideration paid to the
Surveyor for the preparation and certification of such survey
has been paid, in part, in anticipation of such reliance
hereon.
EXECUTED this ____ day of _____________, 19__.
__________________________________________
By:_______________________________________
Registered Public Surveyor No.____________
Address: ________________________________
________________________________
________________________________
[S E A L]"
3.3 Specific matters reflected on a survey meeting the standards set
forth above shall be subject to Agent's reasonable review and approval, such
review and approval to be exercised in light of the effect of the specific
matters in question on the value (to the extent that the appraisal of the Parcel
in question does not specifically reflect the effect on value of the matter in
question), utility, and marketability of the Parcel in question.
4. APPRAISAL.
----------
4.1 The Appraisal shall be addressed as set forth for the environmental
report described above in paragraph 2.1
<PAGE>
4.2 The appraiser shall be satisfactory if he/she is an MAI appraiser
with at least five years of experience in appraising similar properties to the
Parcel in the geographic area of the Parcel.
<PAGE>
EXHIBIT "A"
Form of Assignment Agreement
----------------------------
Dated ________________, ____
Reference is made to the Transaction Agreement, dated as of
____________, 1997 (as the same may hereafter be amended or otherwise modified
from time to time, the "Transaction Agreement"), by and among THE PEP BOYS -
MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee"), CITICORP LEASING,
INC., a Delaware corporation (as Agent, Purchaser and Instrument Holder), BANK
OF MONTREAL, as Purchaser and Instrument Holder, and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company ("Trustee"), pursuant to the Declaration
of Trust ("Declaration of Trust") of even date with the Transaction Agreement
executed by Trustee.
________________________ , a ____________________ ("Assignor") is the
Holder of certain Instruments issued by the Trustee under the Trust Declaration
and desires to assign such Instruments to ____________________________, a
_________________________ ("Assignee"). Certain terms defined in the Transaction
Agreement are used herein with the same meaning.
The Assignor and Assignee agree as follows:
(a) The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor,
without recourse to the Assignor, the Instruments listed on Schedule 1 attached
hereto (the "Assigned Instruments"), together with all of Assignor's rights as
an Instrument Holder under the Transaction Agreement and the Transaction
Documents as of the Effective Date (as defined below) with respect to Assigned
Instruments (the Assigned Instruments, plus all of Assignor's rights with
respect thereto being referred to as the "Assigned Interest"). The effective
date of this sale and assignment shall be the date specified on Schedule 1
hereto (the "Effective Date"). [IF LESS THAN WHOLE INSTRUMENT IS TO BE ASSIGNED,
MODIFY ACCORDINGLY].
(b) It is expressly acknowledged that Assignor does not hereby assign
to Assignee, and Assignee does not hereby assume from Assignor, any of
Assignor's obligations as a "Purchaser" under the Transaction Documents to
purchase additional Instruments thereunder in connection with any Advance.
[DELETE IF THE ASSIGNOR IS NOT A PURCHASER UNDER THE TRANSACTION AGREEMENT.]
(c) On the Effective Date, the Assignee will pay to the Assignor, in
same day funds, at such address and account as the Assignor shall advise the
Assignee, the sum of $___________. From and after the Effective Date, the
Assignor agrees that the Assignee shall be entitled to all rights, powers and
privileges of the Assignor under the Transaction Agreement, the Transaction
Documents and the Instruments to the extent of the Assigned Interest, including
without limitation (i) the right to receive all payments in respect of the
<PAGE>
Assigned Interest for the period from and after the Effective Date, whether on
account of principal or stated amount, interest or current yield, fees,
indemnities in respect of claims arising after the Effective Date, Increased
Costs, Break Costs, or otherwise; (ii) the right to vote and to instruct the
Agent and/or the Trustee under the Transaction Documents based on the Assigned
Interest; and (iii) the right to receive notices, requests, demands and other
communications. The Assignor agrees that it will promptly remit to the Assignee
any amount received by it in respect of the Assigned Interest (whether from the
Lessee, the Trustee, the Agent, or otherwise) in the same funds in which such
amount is received by the Assignor.
(d) The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the Assigned Interest and that such interest is free and
clear of any adverse claim; (ii) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Transaction Agreement, the Instruments or the
Transaction Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Transaction Agreement, the Instruments,
the Transaction Documents or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Lessee or the performance or
observance by the Lessee of any of its obligations under the Transaction
Agreement, the Instruments, the Transaction Documents or any other instrument or
document furnished pursuant thereto.
(e) Assignor hereby authorizes and requests that Trustee issue New
Notes or New Certificates, as applicable, pursuant to Section 3.08 of the
Declaration of Trust, in the name of Assignee (but at the expense of Assignee)
to replace the Assigned Instruments endorsed herewith in accordance with the
terms of the Declaration of Trust. Further, if the Assigned Interest represents
less than all of the indebtedness or equity evidenced by the Instrument in
question, Assignor also hereby requests that Trustee issue to Assignor a New
Note or New Certificate, as applicable, in the amount of $ , representing the
portion of the Instrument not assigned herein by Assignor.
(f) The Assignee (i) acknowledges that it has received a copy of the
Transaction Agreement, together with such financial information or other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment; (ii) agrees that it will,
independently and without reliance upon the Trustee, the Assignor or any other
Instrument Holder and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Transaction Agreement, the Instruments and the other
Transaction Documents; (iii) assumes and agrees to perform in accordance with
their terms all of the obligations which by the terms of the Transaction
Agreement, the Instruments and the other Transaction Documents are required to
be performed by an Instrument Holder and which arise subsequent to the date
hereof; (iv) specifies as its administrative offices (and address for notices)
the offices set forth beneath its name on the signature pages hereof; (v)
represents and warrants to Lessee, Trustee and Agent that the representations
<PAGE>
and warranties applicable to a "Holder" pursuant to Section 2.03 of the
Transaction Agreement are true and correct as to the Assignee as of the date
hereof; and (vi) attaches the forms prescribed by the Internal Revenue Service
of the United States of America certifying as to the Assignee's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to the Assignee under the Transaction
Agreement (and the other Transaction Documents) or such other documents as are
necessary to indicate that all such payments are subject to such rates at a rate
reduced by an applicable tax treaty. Further, Assignee acknowledges that it is
not relying upon any statements of Lessee regarding its financial condition or
that of any of its subsidiaries except to the extent of financial reports and
related information provided by Lessee to Agent pursuant to the Transaction
Documents or in connection with the negotiation and execution thereof.
(g) Following the execution of this Assignment, it will be delivered to
the Agent for acceptance and recording by the Agent in the Register. Upon such
acceptance and recording and receipt of any consent of the Lessee required
pursuant to the Transaction Documents, as of the Effective Date, (i) the
Assignee shall be a party to the Transaction Agreement and, to the extent
provided in this Transaction Assignment, have the rights and obligations of an
Instrument Holder thereunder and under the Instruments and the Transaction
Documents and (ii) the Assignor shall, to the extent provided in this
Assignment, relinquish its rights and be released from its obligations under the
Transaction Agreement, the Instruments and the Transaction Documents. Nothing
herein shall release Assignor from any remaining obligations that Assignor may
have as a Purchaser (if Assignor is a Purchaser) under the Transaction
Documents, nor shall this Assignment release Assignor from, nor reduce
Assignor's rights with respect to or relating to, any other Instruments that
Assignor may continue to hold or may hereafter acquire.
(h) Upon such acceptance, recording and consent, from and after the
Effective Date, Trustee shall make all payments under the Transaction Documents
in respect of the Assigned Interest (including, without limitation, all payments
of principal, interest or current yield) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the
Transaction Documents for periods prior to the Effective Date directly between
themselves.
(i) By its execution hereof Assignee acknowledges that Citicorp
Leasing, Inc. is the currently appointed "Agent" for the Instrument Holders and
Purchasers under the terms of the Transaction Documents, and that Assignee is
acquiring the Instruments subject to the rights (and, where applicable) the
obligations of the Agent or any successor Agent that may hereafter be appointed
pursuant to the Transaction Agreement.
(j) This Assignment shall be governed by, and construed in accordance
with, the laws of the State of Massachusetts.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Assignment to be executed by their respective officers
thereunto duly authorized on the attached Signature Pages, as of the date first
above written.
[See Attached Signature Pages]
<PAGE>
SIGNATURE PAGE OF ASSIGNOR
ATTACHED TO
ASSIGNMENT AGREEMENT
[1997 Pep Boys II Leased Property]
"Assignor"
----------
__________________________________________
a_________________________________________
By________________________________________
Name:_____________________________________
Title:____________________________________
<PAGE>
SIGNATURE PAGE OF ASSIGNEE
ATTACHED TO
ASSIGNMENT AGREEMENT
[1997 Pep Boys II Leased Property]
"Assignee"
----------
__________________________________________
a_________________________________________
By________________________________________
Name:_____________________________________
Title:____________________________________
Address of Assignee:
__________________________________________
__________________________________________
__________________________________________
<PAGE>
Schedule 1
to
Assignment Agreement
Effective Date ___________, 19___
[DESCRIBE THE NOTES/CERTIFICATES TO BE ASSIGNED BY DATE, CERTIFICATE OR NOTE
NUMBER, FACE AMOUNT, ETC.]
<PAGE>
ACKNOWLEDGMENT OF ASSIGNMENT
BY
TRUSTEE AND AGENT
ATTACHED TO
ASSIGNMENT AGREEMENT
[1997 Pep Boys II Leased Property]
"Trustee"
---------
STATE STREET BANK AND TRUST
COMPANY, a Massachusetts
trust company, (not in its
individual capacity, but
solely as Trustee)
By________________________________________
Name:_____________________________________
Title:____________________________________
"Agent"
-------
CITICORP LEASING, INC., a
Delaware corporation
By________________________________________
Name:_____________________________________
Title:____________________________________
<PAGE>
TRANSACTION AGREEMENT
Dated as of February 28, 1997
Among
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation,
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company,
not in its individual capacity except as expressly
stated herein, but solely as Trustee,
and
CITICORP LEASING, INC.,
a Delaware corporation,
as Administrative Agent, Purchaser, and Holder,
and
BANK OF MONTREAL,
as Purchaser and Holder
[1997 Pep Boys II Leased Property]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Preliminary Statement.............................................................................................1
<S> <C> <C> <C>
ARTICLE I. FUNDING................................................................................2
Section 1.01. Advances under Instruments.............................................................2
Section 1.02. Closing Date...........................................................................4
Section 1.03. Conditions for Initial Advance.........................................................5
Section 1.04. Conditions Precedent to All Advances...................................................5
Section 1.05. Advance Process.......................................................................12
Section 1.06. Form of Documents.....................................................................13
Section 1.07. Transaction Fees......................................................................13
Section 1.08. Extension of Lease Term...............................................................15
ARTICLE II. REPRESENTATIONS AND WARRANTIES........................................................15
Section 2.01. Lessee's Representations and Warranties...............................................15
Section 2.02. Trust Company Representations.........................................................17
ARTICLE III. TRUSTEE AND TRUST COMPANY COVENANTS...................................................20
Section 3.01. Lien Claims...........................................................................20
Section 3.02. Inspection of Property................................................................20
Section 3.03. Notice of Significant Matters.........................................................20
Section 3.04. Qualification; Business; Use of Advances..............................................21
Section 3.05. Encumbrances..........................................................................21
Section 3.06. Transaction Documents.................................................................21
Section 3.07. Transactions with Affiliates..........................................................22
Section 3.08. Transfer or Encumbrance of the Property...............................................22
Section 3.09. Compliance with Laws and Documents....................................................23
Section 3.10. Assignment............................................................................23
Section 3.11. Other Tenant Leases...................................................................23
Section 3.12. Agent's Approval of Settlements.......................................................23
Section 3.13. Notice of Actions; Prosecution........................................................24
Section 3.14. Covenants of Trust Company............................................................24
ARTICLE IV. THE NOTES AND THE CERTIFICATES.................................................................25
Section 4.01. Rates Applicable to Instruments.......................................................25
Section 4.02. Assignments and Participations........................................................25
Section 4.03. Taxes.................................................................................28
Section 4.04. Avoidance of Taxes, Other Charges and Increased Costs.................................30
Section 4.05. Sharing of Payments, Etc..............................................................31
Section 4.06. Instrument Holders' Credit Decisions..................................................31
ARTICLE V. MISCELLANEOUS..................................................................................32
Section 5.01. Survival..............................................................................32
Section 5.02. Notices...............................................................................32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Section 5.03. Severability..........................................................................34
Section 5.04. Amendments, Etc.......................................................................34
Section 5.05. Headings..............................................................................34
Section 5.06. Definitions...........................................................................34
Section 5.07. Benefit...............................................................................34
Section 5.08. Place of Payment......................................................................35
Section 5.09. Counterparts..........................................................................35
Section 5.10. Governing Law; Venue..................................................................35
Section 5.11. Business Day..........................................................................35
Section 5.12. The Trustee...........................................................................36
Section 5.13. Estoppel Certificates.................................................................36
Section 5.14. Transaction Documents; Further Assurances.............................................36
Section 5.15. Confidentiality.......................................................................37
Section 5.16. Interest..............................................................................37
Section 5.17. Money.................................................................................38
Section 5.18. Number and Gender of Words............................................................38
Section 5.19. Articles, Sections, Exhibits, and Schedules...........................................38
Section 5.20. Decisions of Parties..................................................................39
Section 5.21. Restructure of Transaction............................................................39
Section 5.22. Construction of Agreement.............................................................39
Section 5.23. Brokers...............................................................................40
Section 5.24. WAIVER OF JURY TRIAL..................................................................40
ARTICLE VI. THE AGENT.............................................................................40
Section 6.01. Appointment...........................................................................40
Section 6.02. Nature of Duties......................................................................41
Section 6.03. Rights, Exculpation, etc..............................................................43
Section 6.04. Reliance..............................................................................43
Section 6.05. Indemnification.......................................................................44
Section 6.06. Successor Agent; Resignation of Agent.................................................44
Section 6.07. Authorization to Act as Agent of Trustee..............................................45
</TABLE>
<PAGE>
FIRST AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys II Leased Property Facility)
This FIRST AMENDMENT TO TRANSACTION AGREEMENT dated as of the 31st day
of July, 1997 (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 (the
"Transaction Agreement") pursuant to the terms of which Trustee will acquire or
has acquired the Property. The Property will be or has been leased to Lessee
(and, where applicable, certain Additional Lessees that are wholly-owned
subsidiaries of Lessee) by Trustee (and in certain cases by a co-trustee
appointed pursuant to the terms of Section 8.04 of the Declaration of Trust)
under that certain Master Lease of even date with the Transaction Agreement
between Trustee, as lessor, and Lessee, as lessee (as heretofore amended,
supplemented or otherwise modified from time to time, the "Lease").
B. Pursuant to the terms and provisions of that certain Lease Guarantee
dated of even date with the Lease ("Lease Guarantee"), the Obligations (as
defined in the Lease Guarantee) of Lessee under the Lease have been guaranteed
by Lease Guarantor.
C. Lessee and Trustee desire to increase the maximum amount of Advances
available to Trustee under the terms of the Transaction Agreement, and CLI and
Bank of Montreal have agreed to increase their respective Commitments
thereunder, subject to certain additional provisions and adjustments to the
Transaction Agreement as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and agreements set
forth herein and therein, the parties agree as follows:
<PAGE>
1. CLI, Bank of Montreal, Agent, Lessee, and Trustee hereby agree that
the maximum amount of Advances available to Trustee under the Transaction
Agreement is hereby increased from $45,000,000.00 to $70,000,000.00.
2. In connection with the increase described above the aggregate
Commitments of CLI and Bank of Montreal are increased to $35,000,000.00 each. To
implement such increases, effective as of the date of this Amendment Sections
1.01(a) and 1.01(b) of the Transaction Agreement are amended to read, in their
entirety, as follows:
"(a) CLI, as an initial Purchaser of the Instruments, confirms
that its Certificate Commitment is $2,800,000.00, its A-Note Commitment
is $28,175,000.00 and its B-Note Commitment is $4,025,000.00, for a
total Commitment of $35,000,000.00. Notwithstanding the foregoing, it
is expressly agreed that in no event will CLI ever be obligated to make
an Advance in respect of its Commitment if, at the time of the Advance
and after giving effect to the Advance in question, the "Hold Position"
of CLI (i) for Advances made during the period ending July 15, 1997,
would exceed $30,000,000.00, (ii) for Advances made during the period
July 15, 1997, through August 31, 1997, would exceed $40,000,000.00,
(iii) for Advances made during the period September 1, 1997, through
December 31, 1997, would exceed $20,000,000.00, (iv) for Advances made
during the period January 1, 1998, through June 30, 1998, would exceed
$15,000,000.00, and (v) for Advances made on or after July 1, 1998,
would exceed $10,000,000.00. For purposes hereof the term "Hold
Position" means the sum of (i) the aggregate outstanding principal
balance and/or stated amounts of Instruments then held by CLI
hereunder, plus (ii) the aggregate outstanding principal and/or stated
amount of notes or equity certificates then held by CLI in respect of
the Pep Boys I Facility, plus (iii) the remaining amount of available
advances that Lessee may request under the Pep Boys I Facility;
provided, however, that there shall be excluded from such calculation
any portion of the principal balance and/or stated amount, as
applicable, of any such instruments (whether hereunder or in respect of
the Pep Boys I Facility) that are held by CLI for the benefit of an
unaffiliated participant or assignee that has closed on or purchased
such participation. It is acknowledged that CLI's "Hold Position" with
respect to the Pep Boys I Facility as of the date hereof is
$15,408,038.28, and the "Hold Position" of CLI hereunder is
$14,426,255.76, such that the maximum amount of Advances currently
available under the CLI Commitment is $10,165,705.96.
"(b) Bank of Montreal, as an initial Purchaser of the
Instruments, confirms that its Certificate Commitment is zero ($0.00),
its A-Note Commitment is $30,625,000.00, and its B-Note Commitment is
$4,375,000.00, for a total Commitment of $35,000,000.00."
3. Section 1.07 of the Transaction Agreement, relating to the fees to
be paid by Lessee, is amended effective as of the date of this Amendment to
read, in its entirety, as follows:
2
<PAGE>
"Section 1.07. Transaction Fees. Lessee shall pay from time
to time the following fees related to the transactions contemplated
herein:
"(a) Arranging/Structuring Fee. In addition to the
$247,500.00 structuring fee paid to CLI in connection with the
execution of the original Transaction Agreement, the receipt
of which is hereby acknowledged by CLI, in connection with the
increase of the aggregate commitments from $45,000,000.00 to
$70,000,000.00 Lessee shall pay to CLI or an Affiliate of CLI
a structuring fee in the amount of $137,500.00 cash upon
execution of the First Amendment to this Transaction
Agreement.
"(b) Servicing Fee. Subject to the terms of a certain
side letter agreement dated February 28, 1997, as amended as
of the date of the First Amendment to this Transaction
Agreement, between Agent and Lessee regarding a limitation on
such fee, on each December 15 (starting December 15, 1997)
throughout the term of this Agreement, as well as on the
Maturity Date, Lessee shall pay to CLI or an Affiliate of CLI
a servicing fee in an amount equal to 0.10% of the weighted
average outstanding principal balance of the Notes and the
weighted-average outstanding amount of the Certificates for
the preceding year. The first payment shall be prorated on a
daily basis for the period from the date hereof through
December 15, 1997, and the last payment due on the Maturity
Date shall also be a prorated payment covering the period
December 16, 2002, through the Maturity Date. The servicing
fee payment due on December 15, 1997, shall be adjusted to
reflect the reduction in the fee from 0.125% to 0.10% as of
the effective date of this First Amendment.
"(c) Commitment Fee. On each March 30, June 30,
September 30, and December 30 through and including September
30, 1998, Lessee shall pay to the Purchasers a commitment fee
(computed quarterly in arrears) in an amount equal to
one-fourth of the amount determined by multiplying the unused
portion of the Commitment (computed on a weighted average
daily basis during the quarter) by the applicable percentage
provided for in the following chart:
Lessee's Debt Rating Commitment Fee Rate
-------------------- -------------------
BBB+ (or higher) 10.0 basis points
BBB 15.0 basis points
BBB- 21.5 basis points
lower than BBB- 27.5 basis points
"Notwithstanding the foregoing, the
commitment fee for the period from February 28, 1997, through
the day immediately preceding the effective date of this
Amendment shall be 20 basis points per annum and at the time
of the June 30, 1997, payment of the commitment fee the Lessee
3
<PAGE>
and CLI shall adjust the commitment fee payment due at that
time to reflect and reconcile the fees paid through such date
in accordance with such retroactive adjustment.
"The last payment due September 30, 1998,
shall be a prorated payment reflecting only the period July 1,
1998, through the Outside Funding Date. In the event the
Outside Funding Date is extended, the obligation to continue
to pay a commitment fee on the unused portion of the
Commitment shall be likewise extended. In the event that
Lessee desires to terminate its right to obtain Advances
hereunder prior to the Outside Funding Date, Agent and Trustee
agree to enter into an amendment to this Agreement and the
other Transaction Documents as necessary to terminate the
obligation of the Purchasers to advance the unused portion of
the Commitment, and after such termination no further
commitment fees shall be due.
"(d) Trustee Fees. From time to time the Lessee
shall pay to the Trustee the various fees and other payments
provided for in the Declaration of Trust and/or in the Fee
Letter."
4. A new Section 4.07 is hereby added to the Transaction
Agreement reading as follows:
"Section 4.07. Payment of Increased Costs, Reserve Costs and
Break Costs. The Lessee will pay, and will indemnify each Instrument
Holder for the full amount of, any Increased Costs, Reserve Costs
and/or Break Costs incurred by such Instrument Holder. Payment of such
amounts shall be made as a part of the Additional Rent payable by the
Lessee under the Lease pursuant to the procedural provisions of the
Lease relating to the payment thereof and paid over to the Instrument
Holder(s) in question as provided for in the Declaration."
5. Simultaneously with the execution of this Amendment, Lessee,
Trustee, Bank of Montreal, Agent, and CLI shall execute and deliver such
amendments to existing Transaction Documents as the parties deem necessary or
desirable in connection with the increase in the maximum amount of Advances
available to Trustee under the Transaction Agreement, including, without
limitation, amendments to, or amendments and restatements of, the Notes, the
Certificate, the Transaction Mortgages and the Lease Guarantee. Without
limitation, the following Instruments shall be issued in replacement of the
Instruments issued contemporaneously with the Transaction Agreement:
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Replacement Instruments to Be Issued
- ---------------------------------------- ------------------------------------- -------------------------------------
Holder Type of Instrument Principal or Face Amount
- ---------------------------------------- ------------------------------------- -------------------------------------
Bank of Montreal A- Note $30,625,000.00
- ---------------------------------------- ------------------------------------- -------------------------------------
Bank of Montreal B-Note $4,375,000.00
- ---------------------------------------- ------------------------------------- -------------------------------------
CLI A-Note $28,175,000.00
- ---------------------------------------- ------------------------------------- -------------------------------------
CLI B-Note $4,025,000.00
- ---------------------------------------- ------------------------------------- -------------------------------------
CLI Certificate $2,800,000.00
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
6. 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.
7. 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.
8. 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.
9. 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..
10. CLI, Bank of Montreal, Agent, and Lessee hereby approve the
execution by Trustee of that certain First Amendment to Declaration of Trust of
even date herewith, and the execution by Trustee and Lessee of that certain
First Amendment to Master Lease of even date herewith, each of which has been
executed to evidence adjustments to the agreements and arrangements of the
parties negotiated and agreed to between the parties in connection herewith.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
6
<PAGE>
SIGNATURE PAGE OF THE PEP BOYS - MANNY, MOE & JACK
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
LESSEE, LESSEE PARENT, LEASE
GUARANTOR AND INDEMNITOR:
----------------------------
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
7
<PAGE>
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
TRUSTEE:
--------
STATE STREET BANK AND TRUST
COMPANY, a Massachusetts
trust company (not in its
individual capacity, but
solely as Trustee)
By:________________________________________
Name:______________________________________
Title:_____________________________________
TRUST COMPANY:
--------------
STATE STREET BANK AND TRUST
COMPANY, a Massachusetts
trust company (in its
individual capacity, but
only as expressly stated
herein)
By:________________________________________
Name:______________________________________
Title:_____________________________________
8
<PAGE>
SIGNATURE PAGE OF CLI AND AGENT
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
AGENT and CLI:
--------------
CITICORP LEASING, INC.,
a Delaware corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
9
<PAGE>
SIGNATURE PAGE OF BANK OF MONTREAL
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
Bank of Montreal:
-----------------
BANK OF MONTREAL
By:________________________________________
Name:______________________________________
Title:_____________________________________
10
<PAGE>
SIGNATURE PAGE OF ADDITIONAL LESSEES
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
ADDITIONAL LESSEES AND INDEMNITORS:
-----------------------------------
PEP BOYS - MANNY, MOE & JACK OF
DELAWARE, INC., a Delaware corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
THE PEP BOYS MANNY MOE & JACK OF
CALIFORNIA, a California corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
11
<PAGE>
SECOND AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys II Leased Property Facility)
This SECOND AMENDMENT TO TRANSACTION AGREEMENT dated as of the 20th day
of October, 1997 (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 will acquire or
has acquired the Property. The Property will be or has been leased to Lessee
(and, where applicable, certain Additional Lessees that are wholly-owned
subsidiaries of Lessee) by Trustee (and in certain cases by a co-trustee
appointed pursuant to the terms of Section 8.04 of the Declaration of Trust)
under that certain Master Lease of even date with the Transaction Agreement
between Trustee, as lessor, and Lessee, as lessee (as heretofore amended,
supplemented or otherwise modified from time to time, the "Lease").
B. Pursuant to the terms and provisions of that certain Lease Guarantee
dated of even date with the Lease ("Lease Guarantee"), the Obligations (as
defined in the Lease Guarantee) of Lessee under the Lease have been guaranteed
by Lease Guarantor.
C. Lessee and Trustee desire to increase the maximum amount of Advances
available to Trustee under the terms of the Transaction Agreement, and CLI and
Bank of Montreal have agreed to increase their respective Commitments
thereunder, subject to certain additional provisions and adjustments to the
Transaction Agreement as hereinafter provided.
<PAGE>
NOW, THEREFORE, in consideration of the premises and agreements set
forth herein and therein, the parties agree as follows:
1. CLI, Bank of Montreal, Agent, Lessee, and Trustee hereby agree that
the maximum amount of Advances available to Trustee under the Transaction
Agreement is hereby increased from $70,000,000.00 to $105,000,000.00.
2. In connection with the increase described above the aggregate
Commitments of CLI and Bank of Montreal are increased to $52,500,000.00 each. To
implement such increases, effective as of the date of this Amendment Sections
1.01(a) and 1.01(b) of the Transaction Agreement are amended to read, in their
entirety, as follows:
"(a) CLI, as an initial Purchaser of the Instruments, confirms
that its Certificate Commitment is $4,200,000.00, its A-Note Commitment
is $42,262,500.00 and its B-Note Commitment is $6,037,500.00, for a
total Commitment of $52,500,000.00. Notwithstanding the foregoing, it
is expressly agreed that in no event will CLI ever be obligated to make
an Advance in respect of its Commitment if, at the time of the Advance
and after giving effect to the Advance in question, the "Hold Position"
of CLI (i) for Advances made during the period ending October 31, 1998,
would exceed $40,000,000.00, and (ii) for Advances made during the
period November 1, 1998, through December 31, 1998, would exceed
$30,000,000.00. For purposes hereof the term "Hold Position" means the
sum of (i) the aggregate outstanding principal balance and/or stated
amounts of Instruments then held by CLI hereunder, plus (ii) the
aggregate outstanding principal and/or stated amount of notes or equity
certificates then held by CLI in respect of the Pep Boys I Facility;
provided, however, that there shall be excluded from such calculation
any portion of the principal balance and/or stated amount, as
applicable, of any such instruments (whether hereunder or in respect of
the Pep Boys I Facility) that are held by CLI for the benefit of an
unaffiliated participant or assignee that has closed on or purchased
such participation. It is acknowledged that CLI's "Hold Position" with
respect to the Pep Boys I Facility as of the date hereof is
$2,512,225.51, and the "Hold Position" of CLI hereunder is
$7,550,552.83, such that the maximum amount of Advances currently
available under the CLI Commitment is $29,937,221.66.
"(b) Bank of Montreal, as an initial Purchaser of the
Instruments, confirms that its Certificate Commitment is zero ($0.00),
its A-Note Commitment is $45,937,500.00, and its B-Note Commitment is
$6,562,500.00, for a total Commitment of $52,500,000.00."
3. Section 1.05(e) of the Transaction Agreement is hereby amended such
that the term "Outside Funding Date" shall mean (i) August 31, 1998, as to any
Parcel added to the Property on or prior to September 30, 1997, and (ii)
December 31, 1998, as to any Parcel added to the Property on or after October 1,
1997.
2
<PAGE>
4. Simultaneously with the execution of this Amendment, Lessee,
Trustee, Bank of Montreal, Agent, and CLI shall execute and deliver such
amendments to existing Transaction Documents as the parties deem necessary or
desirable in connection with the increase in the maximum amount of Advances
available to Trustee under the Transaction Agreement, including, without
limitation, amendments to, or amendments and restatements of, the Notes, the
Certificate, the Transaction Mortgages and the Lease Guarantee. Without
limitation, the following Instruments shall be issued in replacement of the
Instruments heretofore issued pursuant to the Transaction Agreement (it being
acknowledged that CLI has heretofore sold and assigned portions of its A-Note
and B-Note):
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Replacement Instruments to Be Issued
- ---------------------------------------- ------------------------------------- -------------------------------------
Holder Type of Instrument Principal or Face Amount
- ---------------------------------------- ------------------------------------- -------------------------------------
Bank of Montreal A- Note $45,937,500.00
- ---------------------------------------- ------------------------------------- -------------------------------------
Bank of Montreal B-Note $6,562,500.00
- ---------------------------------------- ------------------------------------- -------------------------------------
CLI A-Note $29,137,500.00
- ---------------------------------------- ------------------------------------- -------------------------------------
CLI B-Note $4,162,500.00
- ---------------------------------------- ------------------------------------- -------------------------------------
CLI Certificate $4,200,000.00
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
5. 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.
6. 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.
7. 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.
3
<PAGE>
8. 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.
9. CLI, Bank of Montreal, Agent, and Lessee hereby approve the
execution by Trustee of that certain Second Amendment to Declaration of Trust of
even date herewith.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
4
<PAGE>
SIGNATURE PAGE OF THE PEP BOYS - MANNY, MOE & JACK
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
LESSEE, LESSEE PARENT, LEASE
GUARANTOR AND INDEMNITOR:
----------------------------
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
5
<PAGE>
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
TRUSTEE:
--------
STATE STREET BANK AND TRUST
COMPANY, a Massachusetts
trust company (not in its
individual capacity, but
solely as Trustee)
By:_________________________________________
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
6
<PAGE>
SIGNATURE PAGE OF CLI AND AGENT
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
AGENT and CLI:
--------------
CITICORP LEASING, INC.,
a Delaware corporation
By:____________________________________________
Nancy T. Berke, Vice President
7
<PAGE>
SIGNATURE PAGE OF BANK OF MONTREAL
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
Bank of Montreal:
BANK OF MONTREAL
By:_____________________________________
D. W. Rourke, Director
8
<PAGE>
SIGNATURE PAGE OF ADDITIONAL LESSEES
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
ADDITIONAL LESSEES AND INDEMNITORS:
PEP BOYS - MANNY, MOE & JACK OF
DELAWARE, INC., a Delaware corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
THE PEP BOYS MANNY MOE & JACK OF
CALIFORNIA, a California corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
9
<PAGE>
Exhibit 10.27
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of March 18, 1998 to the AMENDED AND RESTATED
CREDIT AGREEMENT dated as of April 2, 1995 among THE PEP BOYS - MANNY, MOE &
JACK., the Banks signatory thereto and THE CHASE MANHATTAN BANK (successor in
interest to The Chase Manhattan Bank (National Association)), as Agent.
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agent are parties to the Amended
and Restated Credit Agreement referred to above (as heretofore amended, the
"Credit Agreement") pursuant to which the Banks have agreed to extend credit to
the Company as provided therein;
WHEREAS, the Company has requested the Banks and the Agent to amend the
Credit Agreement as herein after set forth;
WHEREAS, the Majority Banks and the Agent are agreeable to such
amendment on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein it is hereby agreed as follows:
1. Definitions.
All terms defined in the Credit Agreement shall be used herein as
defined in the Credit Agreement unless otherwise defined herein or the context
otherwise requires.
2. Amendments to the Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended by restating
the definition of "Debt to Capital Ratio" in its entirety to read as follows:
"`Debt to Capital Ratio' shall mean, at any time,
the ratio of (a) all Indebtedness (whether senior or
subordinated) of the Company described in clause (a) of the
definition of "Indebtedness" at such time to (b) all
Indebtedness (whether senior or subordinated) of the Company
described in clause (a) of the definition of "Indebtedness,"
plus Tangible Net Worth, at such time."
(b) Section 1.01 of the Credit Agreement is hereby further amended by
deleting the definition of "Senior Funded Debt" in its entirety.
(c) Section 9.07 of the Agreement is hereby amended by restating it in
its entirety to read as follows:
"9.07 Leverage Ratio. The Company will not at any
time permit the Leverage Ratio to exceed (a) 1.75 to 1.0 for
the period from January 31, 1998 through August 1, 1998,
(b) 1.65 to 1.0 for the period from August 2, 1998 through
January 30, 1999, and (c) 1.6 to 1.0 thereafter."
<PAGE>
(d) Section 9.10 of the Agreement is hereby amended by restating it in
its entirety to read as follows:
"9.10 NOP/Interest Charges Ratio. The Company will
not at any time permit the NOP/Interest Charges Ratio to be
less than (a) 1.75 to 1.0 for the period from January 31, 1998
through January 30, 1999 and (b) 2.5 to 1.0 thereafter."
(e) The Pricing Schedule is hereby amended in its entirety to read as
follows:
"PRICING SCHEDULE"
Each of the "Applicable Margin," "Commitment Fee Rate" and "Facility Fee Rate"
means, for any day, the per annum rates set forth below in the column under such
term and in the row corresponding to the 'Debt to Capital Ratio' that exists on
such day.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Debt to Capital Applicable Margin
Ratio for Eurodollar Loans Commitment Fee Rate Facility Fee Rate
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
< 0.30 0.125% 0.000% 0.125%
- ------------------------------------------------------------------------------------------------------------
> 0.30 but <= 0.35 0.225% 0.000% 0.125%
- ------------------------------------------------------------------------------------------------------------
> 0.35 but <= 0.40 0.325% 0.025% 0.125%
- ------------------------------------------------------------------------------------------------------------
> 0.40 but <= 0.50 0.400% 0.050% 0.150%
- ------------------------------------------------------------------------------------------------------------
> 0.50 0.625% 0.050% 0.200%"
- ------------------------------------------------------------------------------------------------------------
</TABLE>
3. Representations and Warranties.
In order to induce the Majority Banks and the Agent to make this
Amendment, the Company hereby represents that:
(a) the execution and delivery of this Amendment and the performance of
the Company thereunder and under the Credit Agreement as amended hereby (i) have
been duly authorized by all necessary corporate action, will not violate any
provision of law, or the Company's charter or by-laws, or result in the breach
of or constitute a default, or require a consent, under any indenture or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or their respective
property may be bound or affected, and (ii) each of this Amendment and the
Credit Agreement as amended hereby constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms;
2
<PAGE>
(b) the representations and warranties in Section 8 of the Credit
Agreement are true and correct as of the Closing Date (hereinafter defined) as
if they were being made on such date; and
(c) no Event of Default or event which with notice or lapse of time, or
both, would constitute an Event of Default, has occurred and is continuing on
the Closing Date.
4. Conditions of Effectiveness.
This Amendment shall be effective (as of the date hereof) on the date
when all of the following conditions shall have been met, and such date shall be
the "Closing Date":
(a) Counterparts of this Amendment shall have been executed by the
Company, the Banks and the Agent;
(b) The Agent shall have received a certificate dated the Closing Date
specifying the names and titles and including specimen signatures of the
officers authorized to sign this Amendment.
5. Miscellaneous.
(a) Except as specifically amended hereby, all the provisions of the
Credit Agreement shall remain unamended and in full force and effect, and the
term "Credit Agreement", and words of like import shall be deemed to refer to
the Credit Agreement as amended by this Amendment unless otherwise provided
herein or the context otherwise requires. Nothing herein shall affect the
obligations of the Company under the Credit Agreement with respect to any period
prior to the effective date hereof.
(b) This Amendment shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
THE PEP BOYS - MANNY, MOE & JACK
By__________________________________
Title:
THE CHASE MANHATTAN BANK,
as Agent and a Bank
By__________________________________
Title:
THE PEP BOYS - MANNY, MOE & JACK
OF CALIFORNIA, as a Guarantor
By__________________________________
Title:
3
<PAGE>
PBY CORPORATION, as a Guarantor
By__________________________________
Title:
THE PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., as a Guarantor
By__________________________________
Title:
THE PEP BOYS - MANNY, MOE & JACK OF
PUERTO RICO, INC., as a Guarantor
By__________________________________
Title:
COLCHESTER INSURANCE COMPANY,
as a Guarantor
By__________________________________
Title:
CARRUS SUPPLY CORPORATION,
as a Guarantor
By_________________________________
Title:
4
<PAGE>
CORESTATES BANK
By__________________________________
Title:
BANK OF AMERICA NT&SA
By__________________________________
Title:
NATIONSBANK
By__________________________________
Title:
SUN TRUST BANKS INC..
By__________________________________
Title:
FIRST UNION NATIONAL BANK
By__________________________________
Title:
PNC BANK.
By__________________________________
Title:
5
<PAGE>
FLEET BANK
By__________________________________
Title:
UNION BANK of CA
By__________________________________
Title:
CREDIT SUISSE FIRST BOSTON
By__________________________________
Title:
6
<PAGE>
10/11/93
11/2/93
2/28/94
9/21/94
12/27/94
3/7/96
1/10/97
1/30/97
12/18/97
- --------------------------------------------------------------------------------
The Pep Boys -- Manny, Moe & Jack
Pension Plan
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
Table Of Contents
- -------------------------------------------------------------------------------------------------------------------
Article I. Introduction...........................................................................................1
Article II. Definitions...........................................................................................2
Article III. Participation And Service............................................................................8
Article IV. Plan Benefits.........................................................................................9
Article V. Vesting...............................................................................................14
Article VI. Funding..............................................................................................15
Article VII. Amendment And Termination...........................................................................16
Article VIII. Administration.....................................................................................17
Article IX. Limitations On Contributions And Benefits............................................................20
Article X. Merger, Transfer Or Consolidation Of Plans............................................................22
Article XI. Miscellaneous........................................................................................23
Article XII. Determination Of Top-Heavy Status...................................................................24
Article XIII. ERISA Transition Provisions........................................................................26
Appendix A.......................................................................................................29
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Article I. Introduction
- --------------------------------------------------------------------------------
THE PEP BOYS -- MANNY, MOE & JACK Pension Plan (the "Plan") is
established and maintained in accordance with the terms of this instrument. The
assets of this Plan are held by the Trustee in accordance with the terms of the
Trust Agreement, which is considered to be an integral part of this Plan. Except
as provided herein or in the Trust Agreement, the Trustee has the exclusive
authority to manage and control the assets of this Plan. Except as otherwise
noted herein, this amended and restated version of the Plan applies to those
Participants who are credited with an Hour of Service with the Employer on or
after January 1, 1989.
The Plan is further amended effective January 1, 1989 to comply with
the Tax Reform Act of 1986, as amended, ("TRA 86") except for those provisions
that became effective in years prior to 1989 as described below, or as
specifically noted in the Plan.
(1) Titles XI and XVIII of TRA '86;
(2) Subtitle C of Title IX of OBRA '86;
(3) Optional Form of Benefit Regulations;
(4) Temporary regulations under section 414(q) and (s);
(5) Proposed regulations under sections 401(a)(9);
(6) Notice 87-20, regarding amendments to sections 411(a)
(11)(B) and 417(e)(3) of the Code made by section 1139
of TRA '86; and
(7) Notice 87-21, regarding changes to section 415 of the Code
made by TRA '86;
The rights of those individuals (or their beneficiaries) who terminated
employment prior to January 1, 1989, in and to their benefits payable from the
Plan, are governed by the terms and conditions of the Plan in effect prior to
such date.
1
<PAGE>
- --------------------------------------------------------------------------------
Article II. Definitions
- --------------------------------------------------------------------------------
2.1 Definitions. When used in this Plan, the following initially
capitalized words and phrases shall have the meanings indicated herein:
Accrued Annual Pension means as of any applicable date, the pension
determined in accordance with the provisions of Section 4.1 that the Participant
would be entitled to receive commencing on his Normal Retirement Date based on
his Compensation and Years of Credited Service through the applicable date. An
Accrued Annual Pension to which a Former Participant is entitled shall not be
increased or decreased by reason of any amendments to the Plan adopted on or
after the date he ceased to be a Participant or the date of his Termination. The
Accrued Annual Pensions of all Participants shall be frozen as of December 31,
1996.
Actuarial Equivalent(ce) or Actuarially Equivalent means a benefit of
equivalent current value to the benefit which would otherwise have been provided
on the basis of the following assumptions and determined as of the applicable
Annuity Starting Date:
(a) For lump sum distributions, the UP-1984 Table of Mortality
and the immediate or deferred interest rate, as applicable, used by the Pension
Benefit Guaranty Corporation (in effect on January 1 of the Plan Year in which
the distribution occurs) for valuing benefits in pay status for plans
terminating at the same time, shall be used. The Actuarial Equivalent value of a
lump sum distribution that is payable to a Former Participant prior to Early
Retirement Date, shall be the Actuarial Equivalent value of the benefit
determined as of Normal Retirement Date (using the applicable PBGC rate).
(b) For purposes of any lump sum distribution that is made to
any Participant on or after January 1, 1998, the Actuarial Equivalent value for
such lump sum distribution shall be determined by using the annual interest rate
on 30-year Treasury securities, as specified by the Commissioner, that is in
effect for the month of November which precedes the applicable Plan Year (the
"stability period") in which the lump sum distribution is made, and by using the
applicable mortality table under Section 417(e)(3) of the Code and Treasury
Regulation Section 1.417(e)-1T(d)(2). The Actuarial Equivalent value of a lump
distribution that is payable to a Former Participant prior to Early Retirement
Date, shall be the Actuarial Equivalent value of the benefit determined as of
Normal Retirement Date (using the applicable 30-year Treasury security rate).
(c) For conversions under Section 4.6(b), for optional forms
paid according to Section 4.6(e), early retirement under Section 4.3,
conversions with respect to annuity payments made pursuant to qualified domestic
relations orders and adjustments under Section 9.4, the UP-1984 Table of
Mortality at 7 1/2 percent interest, shall be used. For purposes of establishing
present value for Top-Heavy determinations, interest at 7 1/2 percent shall be
used and the UP-1984 Table of Mortality.
Actuary means an enrolled actuary qualifying as such in accordance with
Title III of ERISA or any firm or entity employing such enrolled actuaries.
Administrative Committee means the individual or group of individuals
appointed to manage the administration of this Plan.
Affiliate means any employer which has not adopted this Plan and is not
a Participating Employer, but which is included as a member with the Employer in
a controlled group of corporations, or which is a trade or business (whether or
not incorporated) included with the Employer in a brother-sister group or
combined group of trades or businesses under common control or which is a member
of an affiliated service group in which the Employer is a member, determined in
each instance in accordance with the appropriate sections of the Code.
Annuity Starting Date means the first day on which benefits are payable
as an annuity or in the case of benefits not payable as an annuity, the first
day on which all events have occurred which entitle the Participant or Former
Participant to the benefits
Beneficiary means the individual or entity designated to receive any
death benefits payable under the Plan.
Anything herein to the contrary notwithstanding, in the case of a
married Participant or Former Participant, no Beneficiary designation which
designates a Beneficiary other than the Participant's Spouse shall be effective
unless such designation constitutes a valid waiver of the qualified joint and
survivor annuity. In the event that the Participant failed to designate a
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Beneficiary or is predeceased by all designated primary and contingent
Beneficiaries, death benefits under this Plan shall be payable to the following
classes of recipients, each class to take to the exclusion of all subsequent
classes, and all members of each class to share equally:
(1) Surviving Spouse;
(2) lineal descendants (including adopted children and stepchildren),
by right of representation;
(3) surviving parents;
(4) surviving brothers and sisters;
(5) Participant's estate.
Board of Directors means the board of directors of the Company.
Break in Service or One-Year Break in Service means a Plan Year during
which an individual is not credited with more than 500 Hours of Service. An
Eligible Employee will not be deemed to have incurred a Break in Service if he
is absent from employment by reason of (1) pregnancy of the Eligible Employee,
(2) birth of a child of the Eligible Employee, (3) placement of a child in
connection with the adoption of the child by an individual, or (4) caring for
the child during the period immediately following the birth or placement for
adoption. During the period of absence the Eligible Employee shall be credited
with the number of hours that would be generally credited but for such absence
or if the general number of work hours is unknown, eight Hours of Service for
each normal workday during the leave (whether or not approved). These hours
shall be credited to the Plan Year in which the leave of absence commences if
crediting of such hours is required to prevent the occurrence of a Break in
Service in such computation period, and in other cases in the immediately
following Plan Year. No more than 501 Hours of Service shall be credited under
this paragraph for any single continuous period (whether or not such period
occurs in a single computation period).
Code or IRC means the Internal Revenue Code of 1986, as amended, and
includes any regulations issued thereunder.
Company means the PEP BOYS -- MANNY, MOE & JACK, a Pennsylvania
corporation.
Compensation means, effective with respect to any Participant who is
credited with an Hour of Service on or after January 1, 1993, for any Plan Year,
total income reported to the Participant as wages for the Employee on Box 1 of
Form W-2 (Box 10 prior to 1993) less any expense reimbursements and taxable
fringe benefits, including any amounts that the Participant has authorized the
Employer to make on his behalf to a 401(k) plan as elective deferrals or to a
cafeteria plan under Section 125 of the Code.
Effective January 1, 1989, with respect to Participants who Terminated
employment on or after that date, Compensation shall be limited to the amount
permitted under the applicable limitation of Section 401(a)(17) of the Code, as
amended, in effect for any Plan Year (adjusted each year to reflect such higher
amount as may be permitted each year under the Code). Notwithstanding the
foregoing, in applying the limits imposed by Section 401(a)(17) for Plan Years
beginning on or after January 1, 1989 and ending on or before January 1, 1994,
with respect to Participants who Terminated employment on or after January 1,
1989, Compensation up to $235,840 may be taken into account for each Plan Year.
Effective January 1, 1994, Compensation shall be limited to $150,000 (adjusted
each year to reflect such higher amount as may be permitted each year under the
Code).
In determining the Compensation of a Participant who is a five percent
owner or Highly Compensated Employee in the group consisting of the ten Highly
Compensated Employees paid the greatest Compensation during the Plan Year, (the
"limited individuals"), then with respect to any individuals in such
Participant's family,
(i) such individual shall not be considered to
be a separate Participant, and
(ii) any Compensation paid to such individual (and any applicable
contribution or benefit on behalf of such individual) shall be treated as if it
were paid (or on behalf of) to the five percent owner or Highly Compensated
Employee.
The term "family" shall include only the Spouse of the Participant and
any lineal descendants of the Participant who might have not attained age 19
before the last day of the Plan Year.
The term "family unit" shall include the limited individuals and
family.
The maximum amount of Compensation permitted to be taken into account
under Section 401(a)(17) of the Code for any Plan Year, shall be allocated among
the members of the family unit in proportion to each member's Compensation for
the Plan Year.
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<PAGE>
Direct Rollover means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
Disability means a medically determinable physical or mental impairment
of a permanent nature which prevents a Participant from performing his customary
employment duties without endangering his health.
Distributee means a Participant or Former Participant. In addition, the
Participant's or Former Participant's Spouse or former Spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are Distributees with regard to the interest of the
Spouse or former Spouse.
Early Retirement Age means the date on which a Participant has attained
age 55 and completed five Years of Credited Service.
Early Retirement Date means the first day of any month following
attainment of his Early Retirement Age.
Effective Date of this amended and restated Plan means January 1, 1989,
except as otherwise provided in the Plan. The original effective date of the
Plan is December 15, 1942.
Eligible Employee means an Employee performing services for the
Employer, including any officer or director who shall so qualify. Eligible
Employee shall not include any individual who qualifies as a Leased Employee and
any individual whose terms and conditions of employment are covered by a
collective bargaining agreement that does not provide for participation in the
Plan.
Notwithstanding the foregoing, (i) any individual initially hired or
rehired by the Employer or an Affiliate on or after February 2, 1992, shall not
be deemed to be an Eligible Employee and shall not be eligible to participate or
resume participation in the Plan; and (ii) any individual whose employment
status as of February 1, 1992, is covered by a collective bargaining agreement
that does not provide for participation in the Plan and whose employment status
changes on or after February 2, 1992 so that he (A) is no longer covered by a
collective bargaining agreement that does not provide for participation in the
Plan, and (B) would otherwise be eligible to participate in the Plan, shall not
be deemed to be an Eligible Employee and shall not be eligible to participate in
the Plan.
Eligible Retirement Plan means: (i) an individual retirement account
described in Section 408(a) of the Code; (ii) an individual retirement annuity
described in Section 408(b) of the Code; (iii) an annuity plan described in
Section 403(a) of the Code; or (iv) a qualified trust described in Section
401(a) of the Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to the
surviving Spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
Eligible Rollover Distribution means any distribution of all or any
portion of the balance to the credit of the Distributee, but does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities) and any other distribution that does not qualify as an Eligible
Rollover Distribution, as defined in Section 401(a)(31)(C) of the Code.
Employee means any individual employed by the Employer as a common law
employee, but does not include any individual that the Employer treats as an
independent contractor even if such individual would be classified as an
employee of the Employer under common law.
Employer means the Company and any Participating Employer, which with
the approval of the Board of Directors, has adopted this Plan. Entry Date means
January 1 and July 1 of each Plan Year.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and includes any regulations issued thereunder.
Final Average Compensation means the average monthly Compensation for
the five consecutive Plan Years, out of the last ten Plan Years that a
Participant completes, coincident with or prior to the date of determination (or
actual period of employment if shorter than five years) in which a Participant
was employed by the Employer for which such average is the highest.
Former Participant means any Eligible Employee, who was a Participant
in the Plan and with respect to whom a benefit remains payable from the Plan.
4
<PAGE>
Fund means the trust or account consisting of the assets of the Plan.
Highly Compensated Employee means:
(a) Employees who were five percent owners, as defined in section
416(i)(1)(iii) of the Code, at any time during the determination year or the
look-back year;
(b) Employees with Compensation greater than $75,000 (as adjusted
at the same time and in the same manner as Section 415(d) of the Code) during
the look-back year;
(c) Employees with Compensation greater than $50,000 (as adjusted
at the same time and in the same manner as Section 415(d) of the Code) during
the look-back year and who are in the top-paid group for the look-back year;
(d) Employees who are officers during the look-back year and who
have compensation in the look-back year greater than 150% of the contribution
limit in Section 415(c) of the Code; and
(e) Employees who are both described in paragraph (b), (c), or
(d) above when these paragraphs are modified to substitute the determination
year for the look-back year and one of the 100 Employees who receive the highest
compensation from the Employer during the determination year.
(1) The top-paid group shall consist of the top 20% of
active Employees, ranked on the basis of compensation received from the Employer
during the year excluding Employees with less than 6 months of service,
part-time Employees (less than 17 1/2 hours per week or less than 6 months a
year), Employees who are not yet age 21 and nonresident aliens. These Employees
shall not be excluded for purposes of identifying the particular Employees in
the top-paid group. If the Plan being tested covers only non-collective
bargaining Employees, and collective bargaining Employees constitute 90 percent
or more of the Employer's Employees, then such collective bargaining Employees
shall be excluded both from the total number of active Employees and the
identification of particular Employees in the top-paid group. The top-paid group
shall not include Employees who perform no service during the year.
(2) For purposes of determining whether an Employee is
highly compensated, the determination year is the Plan Year for which the
determination is being made. The look-back year shall be the preceding Plan
Year. Notwithstanding the foregoing, the Administrative Committee shall have the
authority to make the look-back year be the calendar year ending with or within
the current Plan Year of determination. If the Administrative Committee makes
this election, it shall be deemed to apply to all plans of the Employer and
Affiliates.
(3) The number of officers shall be limited to the lesser of
(a) 50, or (b) the greater of 3 or 10 percent of all Employees. If the Employer
does not have at least one officer whose compensation is in excess of 150% of
the limit in Section 415(c) of the Code, then the highest paid officer of the
Employer shall be treated as a Highly Compensated Employee.
(4) For purposes of defining Highly Compensated Employee,
compensation means any permissible definition of compensation as defined in
Section 415(c)(3) of the Code, including elective contributions, as determined
by the Administrative Committee. The dollar limits are those for the calendar
year in which the determination or look-back year begins.
(5) The Plan shall take into account Employees of all
employers aggregated under Sections 414(b), (c), (m) and (o) of the Code, in
determining who is highly compensated. Also, for this purpose, the term
"Employee" shall include Leased Employees.
Hours of Service means:
(a) Performance of Duties. The actual hours for which an Eligible
Employee is paid or entitled to be paid for the performance of duties by the
Employer;
(b) Nonworking Paid Time. Each hour for which an Eligible
Employee is paid or entitled to be paid by the Employer on account of a period
of time during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity, disability, layoff, jury duty, military duty or leave of absence;
provided, however, no more than 501 Hours of Service shall be credited to an
Eligible Employee on account of any single continuous period during which he
performed no duties; and provided further that no credit shall be given for
payments made or due under a plan maintained solely for the purpose of complying
with applicable workers' or unemployment compensation or for payments which
solely reimburse an Eligible Employee for medical or medically related expenses
incurred by the Eligible Employee;
5
<PAGE>
(c) Back Pay. Each hour for which pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Employer; provided, however,
Hours of Service credited under paragraphs (a) and (b) above shall not be
recredited by operation of this paragraph;
(d) Equivalencies. The Administrative Committee shall have the
authority to adopt any of the following equivalency methods for counting Hours
of Service that are permissible under regulations issued by the Department of
Labor: (1) Working Time; (2) Periods of Employment or (3) Earnings. The adoption
of any equivalency method for counting Hours of Service shall be evidenced by a
certified resolution of the Administrative Committee, which shall be attached to
and made part of the Plan. Such resolution shall indicate the date from which
such equivalency shall be effective.
(e) Miscellaneous. Unless the Administrative Committee directs
otherwise the methods of determining Hours of Service when payments are made for
other than the performance of duties and of crediting such Hours of Service to
Plan Years set forth in Regulations ss.2530.200b-2(b) and (c) promulgated by the
Secretary of Labor, shall be used hereunder and are incorporated by reference
into the Plan.
Participants on military leaves of absence who are not directly or
indirectly compensated or entitled to be compensated by the Employer while on
such leave shall be credited with Hours of Service as required by Section 9 of
the Military Selective Service Act.
Notwithstanding any other provision of this Plan to the contrary, an
Eligible Employee shall not be credited with Hours of Service more than once
with respect to the same period of time.
Eligible Employees shall be credited with any Hours of Service required
to be credited to them in accordance with the Family and Medical Leave Act and
The Uniformed Services Employment and Reemployment Rights Act of 1994.
Investment Manager means an investment adviser, bank or insurance
company which meets the requirements of Section 3(38) of ERISA.
Leased Employee means any person who is not an Employee of the Employer
and who provides services to the Employer if:
(a) such services are provided pursuant to an agreement between
the Employer and any leasing organization;
(b) such person has performed such services for the Employer (or
for the Employer and Affiliates) on a substantially full-time basis for a period
of at least one year; and
(c) such services are of a type historically performed in the
business field of the Employer by Employees.
Notwithstanding the foregoing, a person shall not be deemed to be a
Leased Employee if he is covered by a plan maintained by the leasing
organization and Leased Employees (as determined without regard to this
paragraph) do not comprise more than 20% of the Employer's nonhighly compensated
workforce. Such plan must be a money purchase pension plan providing for
nonintegrated employer contributions of ten percent of compensation and also
providing for immediate participation and vesting.
Limitation Year means the Plan Year.
Normal Annual Pension means the lifetime annual pension determined in
accordance with the provisions of Section 4.1.
Normal Retirement Age means the Participant's 65th birthday.
Normal Retirement Date means the first day of the month coincident with
or next following Normal Retirement Age.
Participant means an Eligible Employee participating in the Plan in
accordance with the provisions of Article III.
Participating Employer means any direct or indirect subsidiary of the
Company or any other entity designated by the Board of Directors, which has
adopted this Plan with the approval of the Company. Participating Employers
shall be limited to those direct or indirect subsidiaries of the Company that
would be Affiliates except for the fact that they have adopted the Plan.
Plan means THE PEP BOYS -- MANNY, MOE & JACK Pension Plan, as herein
set forth and as it may be amended hereafter. This Plan also includes the PEP
BOYS -- MANNY, MOE & JACK of California Pension Plan, the assets and liabilities
of which were merged with and into this Plan, effective as of December 31, 1987.
Plan Year means the period from January 1 through December 31 of each
year.
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<PAGE>
Spouse (Surviving Spouse) means the spouse or surviving spouse of the
Participant or Former Participant; provided that a former spouse will be treated
as the spouse or surviving spouse to the extent provided under a qualified
domestic relations order as described in Section 414(p) of the Code.
Terminated (or Termination) means a termination of employment with the
Employer or with an Affiliate for any reason other than a transfer of employment
from the Employer to an Affiliate or from an Affiliate to another Affiliate.
Trust Agreement means the agreements forming a part of the Plan
pursuant to which the assets of the Plan are held and managed by the Trustee.
Trustee means the trustee or trustees named in the Trust Agreement, or
any successor thereto.
Years of Credited Service means the periods of employment taken into
account in determining a Participant's Accrued Annual Pension or Normal Annual
Pension under this Plan. A Participant shall be credited with a Year of Credited
Service for each Plan Year in which he has completed 1,000 Hours of Service with
the Employer.
A Participant shall be credited with a partial Year of Credited
Service, to the completed month, for the portion of a Plan Year during which he
was not a Participant for the entire Plan Year, provided that the number of
Hours completed by the Participant during such portion of a Plan Year equal or
exceed the product of (i) 83.33 and (ii) the number of full months the
Participant was actually a Plan Participant in such Plan Year.
A Participant who was employed by the Employer between December 15,
1978 and December 31, 1978, shall be credited with .04167 of a Year of Credited
Service for such period.
A Participant shall not earn Years of Credited Service prior to the
Entry Date on which he first became a Participant except that any Participant
who was employed on December 14, 1976, shall earn Years of Credited Service for
his pre-participation eligibility waiting period to the extent that such service
would have been credited as Years of Credited Service, if the eligibility
requirements in effect on December 15, 1976 had been in effect when such
Participant's employment commenced with the Employer. Effective as of December
31, 1996, a Participant shall not earn any additional Years of Credited Service
under the Plan.
Year of Service means (a) when applied to eligibility provisions, (i)
the 12-month period commencing on an individual's date of employment with the
Employer in which he is credited with 1,000 or more Hours of Service, and (ii)
thereafter, the Plan Year which includes the first anniversary of the Eligible
Employee's initial date of employment and successive anniversaries of such Plan
Year, in which he is credited with 1,000 or more Hours of Service; and (b) when
applied to vesting provisions, each Plan Year in which an Eligible Employee is
credited with 1,000 Hours of Service.
An Employee who was credited with 1,000 Hours of Service in the 12
consecutive month period beginning (i) December 15, 1977 and ending on December
14, 1978; and (ii) beginning January 1, 1978 and ending December 31, 1978, shall
earn a Year of Service for such additional time periods.
Years of Service completed prior to December 15, 1976 shall be
disregarded if such service would have been disregarded under the break in
service rules then in effect.
For purposes of determining an Eligible Employee's eligibility to
participate in the Plan pursuant to Section 3.1 and vesting pursuant to Section
5.1, Years of Service shall include an Eligible Employee's Years of Service (i)
as a Leased Employee of the Employer or an Affiliate (after the employer became
an Affiliate) and not described in Section 414(n)(5) or (ii) as an Employee of
the Employer or an Affiliate (after the employer became an Affiliate) covered by
the terms of a collective bargaining agreement that does not provide for
participation in this Plan, (iii) while a common law Employee of the Employer
who is not deemed to be an Eligible Employee or as a common law Employee of an
Affiliate, or (iv) while an Employee of a predecessor organization of the
Employer in any case where the Employer maintains the plan of such predecessor
organization.
2.2 Construction. The masculine gender, where appearing in this Plan,
shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. Titles of sections are inserted for convenience and
shall not affect the meaning or construction of the Plan.
7
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Article III. Participation And Service
- --------------------------------------------------------------------------------
3.1 Eligibility to Participate. Each Eligible Employee who was a
Participant in the Plan on December 31, 1988 shall continue as a Participant on
January 1, 1989 if he is still employed on that date. Each other Eligible
Employee shall commence participation in the Plan on the Entry Date coincident
with or next following attainment of age 21 and completion of one Year of
Service.
Any individual hired or rehired by the Employer or an Affiliate on or
after February 2, 1992, shall not be eligible to commence or resume
participation in the Plan. Notwithstanding any provision of this Plan to the
contrary, any individual whose employment status as of February 1, 1992, is
covered by the terms of a collective bargaining agreement that does not provide
for participation in the Plan and whose employment status changes on or after
February 2, 1992 so that he is no longer covered by a collective bargaining
agreement that does not provide for participation in the Plan, shall not be
eligible to participate in the Plan.
3.2 Cessation of Participation. An Eligible Employee shall cease to be
a Participant upon the earliest of: (a) the date on which he retires under the
retirement provisions of the Plan; (b) the date on which he ceases to satisfy
the eligibility requirements of Section 3.1; or (iii) the date on which his
employment Terminates for any reason including death, or Disability.
3.3 Changes in Status and Transfers to Affiliates.
(a) An Employee who transfers from an Affiliate to the Employer
and becomes an Eligible Employee or an Employee of the Employer who becomes an
Eligible Employee shall be eligible to participate in the Plan on the date as of
which he has satisfied the eligibility requirements of Section 3.1. He shall
commence participation in the Plan on the later of his transfer or change in
status or the Entry Date next following the date he has satisfied the
eligibility requirements of Section 3.1.
(b) A Participant's status as such under the Plan shall be
changed, as provided below, upon and after the occurrence of:
(1) In the case of a Participant whose employment was not
covered by a collective bargaining agreement at the time the Participant became
such, the date as of which the Participant's employment becomes covered by a
collective bargaining agreement that excludes such individual from participation
in this Plan;
(2) The date as of which a Participant becomes a Leased
Employee; or
(3) The date as of which a Participant is transferred to or
hired by an Affiliate.
(c) The Participant's status under the Plan upon and after the
occurrence of one of the above events shall be modified as follows:
(1) The Participant's Accrued Annual Pension shall not be
increased or decreased thereafter by reason of the Participant's continued
employment with the Employer or with an Affiliate or by reason of any increases
or decreases in Compensation after such date; and
(2) The Participant will remain eligible for the benefits
provided by Article IV, if at the time his employment with the Employer or an
Affiliate ceases, he has satisfied the age, service and other requirements of
this Plan for such benefits.
(3) The Participant will continue to be credited with
additional Years of Service if he continues to be employed by the Employer or an
Affiliate except as otherwise provided for under the Plan.
3.4 Reemployment. A Participant who Terminated employment with the
Employer and is reemployed by the Employer shall again be eligible to become a
Participant on the date he again performs an Hour of Service for the Employer. A
former Eligible Employee who is reemployed by the Employer prior to incurring
five consecutive one year Breaks in Service, shall become eligible to become a
Participant on the Entry Date he has satisfied the age and service requirements
of Section 3.1 or the date he is reemployed by the Employer, if later. A former
Eligible Employee who is reemployed after incurring five consecutive one year
Breaks in Service shall be treated as a new Eligible Employee and must meet the
requirements of Section 3.1 for purposes of eligibility to participate.
8
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Article IV. Plan Benefits
- --------------------------------------------------------------------------------
4.1 Normal Retirement. A Participant may retire on his Normal
Retirement Date. Each Participant who retires on his Normal Retirement Date, and
who has not received benefits, under other provisions of the Plan, shall be
entitled to receive the greater of a Normal Annual Pension or an Accrued Annual
Pension determined as of any previous date on which the Participant was eligible
for early retirement pursuant to Section 4.3. Any Former Participant whose
rights and interests in the Plan are vested, and who has not received benefits
under other provisions of the Plan, shall be entitled to receive an Accrued
Annual Pension commencing on his Normal Retirement Date and continuing during
his lifetime.
The Plan may suspend the benefits of a Participant who continues in the
service of the Employer after Normal Retirement Date, provided that if such
Participant is an Eligible Employee, such Eligible Employee receives payment
from the Employer for 80 Hours of Service during a calendar month. Any
Participant whose Normal Annual Pension is suspended shall be notified in
writing by personal delivery or first class mail during the first month or
payroll period for which payment of benefits is suspended.
The Normal Annual Pension payable to each Participant or Former
Participant shall be equal to .008 of the Participant's Final Average
Compensation, multiplied by his Years of Credited Service, multiplied by 12.
Notwithstanding the foregoing, in no event shall (i) a Participant's
monthly benefit hereunder exceed $1,666.67; nor (ii) a Participant's monthly
benefit hereunder be less than his Accrued Annual Pension as of December 31,
1988, (with Final Average Compensation and Years of Credited Service determined
as of such date) without the limitations on Compensation that became effective
on January 1, 1989.
In addition, the monthly benefit payable to any Participant who is
employed by the Employer on or after January 1, 1994 shall not be less than his
Accrued Annual Pension determined as of December 31, 1993, (with Final Average
Compensation and Years of Credited Service determined as of such date) based on
the limitations on Compensation that were in effect under Section 401(a)(17) of
the Code prior to January 1, 1994.
A Participant or Former Participant to whom Article XIII of the Plan
relates, shall receive the greater of the benefit described in this Section 4.1
or the benefit set forth in Section 13.2.
Effective as of December 31, 1996, the Normal Annual Pensions of all
Participants under the Plan shall be frozen and no additional benefits shall
accrue after that date.
4.2 Deferred Retirement. A Participant who continues in employment
beyond his Normal Retirement Date may retire on the first day of any succeeding
calendar month that coincides with or next follows the month in which his actual
retirement occurs. A Participant's deferred retirement benefit shall be
determined either under (a) or (b), whichever produces the greater benefit:
(a) by continuing to apply the formula set forth in Section 4.1 to
his Compensation and Years of Credited Service after his Normal Retirement Date;
or
(b) by using the increased Actuarial Equivalent of the
Participant's benefit which he had accrued under the terms of the Plan as of his
Normal Retirement Date.
4.3 Early Retirement. By written notice delivered to the Administrative
Committee before the date his pension is to commence, effective January 1, 1989,
a Participant who has attained Early Retirement Date and whose employment
Terminates on or after January 1, 1989, may elect to receive an early retirement
pension after Termination. In such event he shall be entitled to either:
(a) A deferred pension commencing at his Normal Retirement Date
equal to the Accrued Annual Pension determined on the basis of his Compensation
and Years of Credited Service to the date of his early retirement hereunder; or
(b) A pension commencing as of the first day of any month
coincident with or next following his Early Retirement Date which is equal to
the Actuarial Equivalent of the benefit calculated under Section 4.1 payable at
the Participant's Normal Retirement Date.
4.4 Disability Benefit. A Participant who becomes Disabled shall be
eligible to receive a pension commencing at his Normal Retirement Date in an
amount equal to his Accrued Annual Pension, determined as of his Disability
Date. In lieu of the foregoing, a Participant may elect to receive his Accrued
Annual Pension as of the first day of any month following his Disability, which
shall be the Actuarial Equivalent of the Participant's benefit payable at his
Normal Retirement Date.
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4.5 Termination Benefit. A Participant who Terminates his employment
with a vested interest in his Accrued Annual Pension shall be eligible to
receive his benefit in accordance with Section 4.1 or Section 4.3, as
applicable. A Former Participant who Terminated employment on or after January
1, 1989 who met the service requirement for early retirement when he Terminated
employment, may elect to receive an early retirement pension as of the first day
of any month coincident with or next following attainment of age 55.
4.6 Form of Payments.
(a) Single Participants. If a Participant or Former Participant is
single on the Annuity Starting Date, the normal form of payment, unless elected
otherwise within the 90 day period ending on the Annuity Starting Date, shall be
a single life annuity with payments guaranteed for 120 months.
(b) Married Participants. If a Participant or Former Participant is
married on the Annuity Starting Date, the normal form of payment, unless elected
otherwise, within the 90 day period ending on the Annuity Starting Date, and
with the consent of the Participant's or Former Participant's Spouse, pursuant
to subsection (d), shall be a qualified joint and survivor annuity, which shall
be the Actuarial Equivalent of the normal form for single Participants described
in Section 4.6(a), as applicable, payable for life to the Participant or Former
Participant and thereafter, for the life of the Participant's or Former
Participant's Surviving Spouse in an amount equal to 50% of the amount that was
payable to the Participant or Former Participant.
(c) Notice and Information to Participants. The Administrative
Committee shall furnish each Participant or Former Participant with the
following information regarding benefits payable under the Plan in written
nontechnical language:
(1) A general description or explanation of the automatic
post-retirement Spouse's benefit described in Section 4.6(b) and single life
annuity benefit with payments guaranteed for 120 months described in Section
4.6(a) and notification of the Participant's or Former Participant's right to
waive the right to receive his benefits in a qualified joint and survivor
annuity or single life annuity with payments guaranteed for 120 months and the
right to make or revoke a previous election to waive the qualified joint and
survivor annuity or single life annuity with payments guaranteed for 120 months.
(2) A general explanation of the relative financial effect on a
Participant's or Former Participant's benefits of any of the foregoing
elections.
(3) Notification of the availability, upon written request of a
Participant or Former Participant of an explanation of the financial effect of
any of the foregoing elections upon the requesting Participant's or Former
Participant's benefits under the Plan and notification that each Participant or
Former Participant may make only one such request.
(4) A general explanation of the rights of a Participant's or
Former Participant's Spouse. The Administrative Committee shall provide a
Participant or Former Participant with the information described in this Section
no later than 30 days and no earlier than 90 days prior to each Participant's or
Former Participant's Annuity Starting Date.
(d) Election and Revocation of Spouse's Annuities. A
Participant or Former Participant who is entitled to receive his benefits or
Spouse's benefits in the form described in Section 4.6(a) or (b) may elect to
receive such benefits in any other form permitted by the Plan by giving written
notification to the Administrative Committee during the election period of his
intent to receive his benefits in such other form. Such election period shall be
the 90 day period ending on the Annuity Starting Date.
Any election to waive the qualified joint and survivor annuity
under Section 4.6(b) shall not take effect unless the Spouse of the Participant
or Former Participant consents in writing to such election and the Spouse's
consent acknowledges the effect of such election and is witnessed by a notary
public or a representative of the Administrative Committee. The requirements
with respect to spousal consent may be waived if it is established to the
satisfaction of the Administrative Committee that the consent may not be
obtained because there is no Spouse or because the Spouse cannot be located or
because of such other circumstances as may be prescribed by regulation. Any
consent necessary under this provision will be irrevocable and valid only with
respect to the Spouse who signs the consent.
Any election made under this Section may be revoked by the
Participant or Former Participant during the specified election period. Such
revocation shall be effected by written notification to the Administrative
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Committee. Following such revocation, another election under this Section may be
made at any time during the specified election period. A revocation of a prior
waiver may be made at any time by a Participant or Former Participant without
the consent of the Spouse before the Annuity Starting Date.
Any actual or constructive election under this paragraph (d) having the
effect of providing a Spouse's benefit shall automatically be revoked if the
electing person ceases to have a Spouse during the election period. However, if
the electing person subsequently remarries, the spousal consent requirements
will automatically be reinstated at that time.
(e) Optional Forms. In lieu of the normal form of benefit set forth
in Sections 4.6(a) and (b), a Participant or Former Participant may elect one of
the optional forms of payment described below. All optional forms of payment
shall be the Actuarial Equivalent of the normal form for single Participants set
forth in Section 4.1, determined as of the Annuity Starting Date.
(1) Life Annuity Option Guaranteed for 120 months. A
Participant or Former Participant may elect to have his pension paid in the form
of a straight life annuity with payments guaranteed for 120 months. Under such
annuity, payments will be made monthly during the Participant's or Former
Participant's lifetime in an amount equal to the Participant's or Former
Participant's Normal Annual Pension or Accrued Annual Pension. If the
Participant or Former Participant should die before receiving 120 months of
payments, the remaining payments shall be payable to a Beneficiary designated by
such Participant or Former Participant.
(2) Life Annuity Option. A Participant or Former Participant
may elect to have his pension paid in the form of a straight life annuity. Under
such annuity, payments will be made monthly during the Participant's or Former
Participant's lifetime in an amount equal to the Participant's or Former
Participant's Normal Annual Pension or Accrued Annual Pension.
(3) Additional Options. A Participant or Former Participant to
whom the provisions of Article XIII apply may elect to have his Normal Annual
Pension or Accrued Annual Pension paid in the forms set forth therein.
Any election of an optional form of payment may be revoked by the
Participant or Former Participant prior to the first day on which such optional
form is scheduled to be paid.
If the Surviving Spouse or other joint annuitant, whichever is
applicable, dies before the first day on which an optional form is scheduled to
be paid, the optional form is replaced by the normal form that would have been
paid absent the election of an optional form.
Any election of an optional form of benefit provided shall provide that
any death benefit payable hereunder shall comply with the incidental death
benefit requirements of Section 401(a)(9)(G) of the Code and regulations
thereunder.
4.7 Death Prior to the Annuity Starting Date. If a Participant or
Former Participant dies prior to the Annuity Starting Date, a death benefit may
be payable under the circumstances described below.
(a) On the death of a vested Participant or Former Participant who
has reached his Early Retirement Date, his Spouse shall, if his Spouse has
survived him and they have been married through the one-year period ending on
the date of death, be entitled to receive immediately a monthly benefit equal to
one-half (1/2) of the Participant's Accrued Annual Pension or Normal Annual
Pension determined as of the date of his death, payable as a qualified joint and
50% survivor annuity set forth in Section 4.6(b) and reduced for early payment,
as applicable, in accordance with Section 4.3.
(b) On the death of a vested Participant or Former Participant who
has not reached his Early Retirement Date, but who is entitled to a vested
interest in his Accrued Annual Pension, his Spouse shall, if his Spouse has
survived him and they have been married through the one-year period ending on
the date of death, be entitled to receive a monthly benefit, payable on the
Participant's earliest retirement date under the Plan, equal to one-half (1/2)
of the Participant's Accrued Annual Pension determined as of the date of his
death, payable as a qualified joint and 50% survivor annuity set forth in
Section 4.6(b) and reduced for early payment, as applicable, in accordance with
Section 4.3.
(c) A Participant's or Former Participant's Surviving Spouse shall
have the right to elect to defer payment of the Spouse's survivor benefit until
the date the Participant would have reached his Normal Retirement Date, had he
lived.
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<PAGE>
4.8 Form of Pension Payments. Payments shall be paid monthly as of the
first of the month, except that the Administrative Committee shall direct that
payments which would otherwise be less than $20 per month be made quarterly,
semi-annually or annually.
4.9 Restrictions and Limitations on Distributions. Distribution of
benefits to a Participant or Former Participant must commence no later than
April 1 of the calendar year following the calendar year in which the
Participant or Former Participant attains age 70 1/2; provided, however, that
distribution to a Participant or Former Participant who attained age 70 1/2
before January 1, 1988 and is not a five percent owner as defined in Section
416(i) of the Code (with respect to the Plan Year ending in the calendar year in
which the Participant or Former Participant attains age 66 1/2 or any succeeding
Plan Year) must commence no later than April 1 of the calendar year following
the later of the calendar year in which the Participant or Former Participant
attains age 70 1/2 or the calendar year in which the Participant or Former
Participant retires.
To the extent a Participant continues to accrue additional benefits,
his Accrued Annual Pension shall be redetermined annually to include such
additional accruals, but shall not be offset by the Actuarial Equivalent value
of any payments previously made. The Annuity Starting Date of such Participant
shall be deemed to occur at the date the first payment required by this Section
is due to be paid. Any additional accruals after benefits commence hereunder
shall be paid in accordance with the election made by the Participant pursuant
to Section 4.6.
4.10 Restrictions on Death Distributions. Distributions pursuant to the
death of a Participant or Former Participant shall be distributed no later than
December 31 of the calendar year in which occurs the fifth anniversary of the
Participant's or Former Participant's death. However, if such distribution had
already commenced in the form of payments over a period permitted by Section
4.5, the remaining benefits may be distributed over such period.
The first sentence of the preceding paragraph shall not apply if either
condition of (a) or (b) as set forth below are satisfied:
(a) If the Participant's or Former Participant's designated
Beneficiary is the Surviving Spouse of the Participant or Former Participant,
such distribution shall not be required to begin prior to the later of (i)
December 31 of the calendar year following the calendar year in which the
Participant or Former Participant died, or (ii) December 31 of the calendar year
in which the Participant or Former Participant would have attained age 70 1/2,
and at such time may be distributed over the life of such Spouse (if the
Surviving Spouse dies prior to commencement of distributions to such Spouse,
then this subsection (a) shall be applied as if the Surviving Spouse were the
Participant or Former Participant);
(b) If the Participant's or Former Participant's distribution, or
any portion thereof, is payable to a designated Beneficiary, such distribution
or portion thereof may be distributed in accordance with regulations over the
life of such designated Beneficiary if such distribution or portion thereof
begins not later than December 31 of the calendar year in which occurs the first
anniversary of the Participant's or Former Participant's death. For purposes of
subsections (a) and (b), life expectancy shall be calculated in accordance with
the provisions of Section 72 of the Code.
Any amount payable to a child pursuant to the death of a Participant or
Former Participant shall be treated as if it were payable to the Participant's
or Former Participant's Surviving Spouse if such amount would become payable to
the Surviving Spouse upon such child reaching majority (or other designated
event permitted by regulations).
4.11 Cash-Out of Small Benefits.
(a) Notwithstanding any other provision of this Article IV, the
Actuarial Equivalent value of (i) a qualified joint and survivor annuity payable
to a Participant or Former Participant who meets the requirements of Section
4.6(b) and who is fully vested or (ii) a single life annuity with payments
guaranteed for 120 months payable to a Participant or Former Participant who
meets the requirements of Section 4.6(a) and who is fully vested shall be
distributed to the Former Participant no later than the end of the second Plan
Year after his retirement or termination at his election, if such Actuarial
Equivalent value of his entire Accrued Annual Pension or Normal Annual Pension
is $3,500 or less, and effective with respect to any Participant who Terminates
on or after January 1, 1998, if such Actuarial Equivalent value of his entire
Accrued Annual Pension or Normal Annual Pension is $5,000 or less. A Participant
who has a zero vested interest in his Accrued Annual Pension shall be deemed to
have received a distribution of his Accrued Annual Pension immediately upon his
Termination of employment.
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<PAGE>
Effective with respect to any Former Participant whose employment Terminated
prior to January 1, 1998, if the Actuarial Equivalent value of such
Participant's Accrued Annual Pension or Normal Annual Pension, determined as of
any date after 1997 does not exceed $5,000, then if the Participant consents in
writing, with the consent of his Spouse if applicable (in accordance with
Section 4.6(d) of the Plan), such Actuarial Equivalent value may be distributed
to the Former Participant as soon as practicable following receipt by the
Administrative Committee of such written consent.
(b) Notwithstanding any other provision of this Article IV, the
Actuarial Equivalent value of the Spouse's death benefit payable to the Spouse
of a Participant or Former Participant pursuant to Section 4.7 shall be
distributed to such Spouse as soon as practicable following the Participant's or
Former Participant's death if such Actuarial Equivalent value is $3,500 or less.
Effective with respect to any Participant or Former Participant whose death
occurs on or after January 1, 1998, the foregoing reference to the Actuarial
Equivalent value of $3,500, shall be increased to $5,000 (determined at the time
of any distribution).
Effective with respect to any Former Participant whose death occurred
prior to January 1, 1998, if the Actuarial Equivalent value of the Spouse's
death benefit determined as of any date after 1997, exceeds $3,500, but does not
exceed $5,000, then if the Spouse consents in writing, such Actuarial Equivalent
value may be distributed to the Spouse as soon as practicable following receipt
by the Administrative Committee of such written consent.
4.12 Rollovers from the Plan. Notwithstanding any provision of the Plan
to the contrary, effective January 1, 1993, a Distributee may elect, at the time
and in the manner prescribed by the Administrative Committee, to have any
portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan, specified by the Distributee, in a Direct Rollover.
4.13 Payments to an Alternate Payee. Payments to an Alternate Payee
pursuant to a qualified domestic relations order under Section 414(p) of the
Code shall not be made prior to the date that the Participant or Former
Participant has reached or would have reached his earliest retirement date under
the Plan, except for any small payments provided under Section 4.11.
13
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Article V. Vesting
- --------------------------------------------------------------------------------
5.1 Vesting Schedule. A Participant's right to a Normal Annual Pension
or an Accrued Annual Pension shall be fully vested and nonforfeitable if he is
living and employed by the Employer or an Affiliate on his Normal Retirement
Age. Prior thereto, the rights and interests of a Participant or Former
Participant in and to his Accrued Annual Pension under the Plan shall become
fully vested and nonforfeitable in accordance with the following schedule:
Years of Service Vested Percentage Forfeited Percentage
---------------- ----------------- --------------------
less than 5 years 0% 100%
5 years of more 100% 0%
Each Participant who is employed on December 31, 1996 shall be 100%
vested in his Accrued Annual Pension, which he had accrued as of December 31,
1996.
5.2 Forfeitures. Notwithstanding Section 5.1, and except as otherwise
provided under the Plan, a Participant's or Former Participant's rights and
interests in the Plan, shall be forfeited, if prior to full vesting under
Section 5.1, he dies before Normal Retirement Date or actual retirement date,
whichever is later. All forfeitures shall occur immediately upon Termination of
employment and shall not be used to increase the benefits of any Participant.
5.3 Reemployment.
(a) Upon the reemployment of a Participant who was vested when
he Terminated employment, his Years of Service and Years of Credited Service
shall be reinstated as of his date of reemployment.
(b) Upon the reemployment of a Participant or Employee who was
not vested when he Terminated employment, his Years of Service and Years of
Credited Service shall be reinstated as of his date of reemployment unless the
number of his consecutive One-Year Breaks in Service equals or exceeds the
greater of five years or the number of his Years of Service with which he was
credited prior to such consecutive One-Year Breaks in Service.
14
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Article VI. Funding
- --------------------------------------------------------------------------------
6.1 Contributions by Employer. The Employer shall contribute to the
Fund on account of each Plan Year an aggregate amount, in cash or other
property, determined pursuant to a funding method and actuarial assumptions,
which shall be selected by the Administrative Committee, and which shall be, in
the opinion of an Actuary who shall be appointed by the Administrative
Committee, designed to fund the Plan's benefits on a sound actuarial basis. Such
amount shall also be sufficient to satisfy the Plan's "minimum funding standard"
within the meaning of the Code for that Plan Year. The Employer's contribution
for each Plan Year shall be made no later than the time permitted under the Code
and regulations promulgated by the Secretary of the Treasury.
6.2 Insurance. The Employer may enter into a contract or contracts with
an insurance company, qualified to perform services under the laws of more than
one state, which shall become part of this Plan, for purposes of providing the
benefits and funding the Plan.
6.3 Investment Policies. The investment policies of the Plan shall be
established and may be changed at any time by the Administrative Committee,
which shall thereupon communicate such policies to any persons having authority
to manage the Plan's assets. The Investment Manager shall have the authority to
invest in any collective investment fund maintained exclusively for the
investment of assets of exempt, qualified employee benefit trusts. The assets so
invested shall be subject to all the provisions of the instrument establishing
such collective investment fund, as amended from time to time, which is hereby
incorporated herein by reference and deemed to be an integral part of the Plan
and corresponding Trust.
The Administrative Committee, whose membership is to be determined by
the Board, is the named fiduciary to act on behalf of the Company in the
management and control of the Plan assets and to establish and carry out a
funding policy consistent with the Plan objectives and with the requirements of
any applicable law. The Administrative Committee shall carry out the Company's
responsibility and authority:
(a) To appoint as such term is defined in Section 3(38) of
ERISA, one or more persons to serve as Investment Manager with respect to all or
part of the Plan assets, including assets maintained under separate accounts of
an insurance company;
(b) To allocate the responsibilities and authority being
carried out by the Administrative Committee among the members of the
Administrative Committee.
(c) To take any action appropriate to assure that the Plan
assets are invested for the exclusive purpose of providing benefits to
Participant and their Beneficiaries in accordance with the Plan and defraying
reasonable expenses of administering the Plan, subject to the requirements of
any applicable law.
(d) To establish any rules it deems necessary. The
Administrative Committee including each member and former member to whom duties
and responsibilities have been allocated, shall be indemnified and held harmless
by the Employer with respect to any breach of alleged responsibilities performed
or to be performed hereunder.
15
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Article VII. Amendment And Termination
- --------------------------------------------------------------------------------
7.1 Amendments Generally. The Company, by action of the Board of
Directors or to the extent indicated under Section 8.2, by the Administrative
Committee, reserves the right to make from time to time any amendment or
amendments to this Plan or Trust Agreement that do not cause any part of the
Fund to be used for, or diverted to, any purpose other than the exclusive
benefit of Participants or Former Participants.
Except as may be permitted by ERISA or the Code, no amendment to the
Plan shall decrease a Participant's or Former Participant's accrued benefits or
eliminate an optional form of benefit as those terms are defined in the Code.
7.2 Amendments to Vesting Schedule. Any future amendment to the Plan
which alters the vesting schedule set forth in Section 5.1 or which affects a
Participant's nonforfeitable percentage in and to his rights and interests in
benefits provided by Employer contributions shall be deemed to include the
following terms:
(a) The vested percentage of a Participant applicable to his
Accrued Annual Pension under the Plan determined as of the later of the date
such amendment is adopted or the date such amendment becomes effective shall not
be reduced unless the amendment is for purposes of conforming the Plan to
requirements of the Code, or any other applicable law; and
(b) A Participant with at least three Years of Service on the
later of the adoption or effective date of any amendment to the Plan may elect
to have his nonforfeitable interest computed under the Plan without regard to
such amendment. Such election must be made within 60 days from the later of date
on which the amendment was adopted, the amendment was effective or the
Participant was issued written notice of such amendment by the Administrative
Committee.
7.3 Termination, Discontinuance of Contributions or Curtailment.
Subject to the provisions of Title IV of ERISA, the Plan may be terminated or
curtailed, or the Employer's obligation to contribute to the Fund may be
discontinued, in whole or in part, at any time without the consent of any other
person by action of the Board of Directors.
7.4 Distributions on Termination. In the event that the Plan is
completely or partially terminated, the rights of all affected, actively
employed Participants to their Accrued Annual Pensions to the date of such
termination shall become fully vested and nonforfeitable only to the extent
funded. The assets of the Plan available to provide benefits shall be allocated
among the persons who are entitled or who may become entitled to benefits under
the Plan, subject to and in the manner prescribed by the applicable provisions
of Title IV of ERISA. Any other provision of the Plan to the contrary
notwithstanding, if there remain any assets of the Plan after all liabilities of
the Plan to Participants or Former Participants and their Beneficiaries have
been satisfied or provided for, such residual assets shall thereupon be
distributed to the Employer subject to and in accordance with Title IV of ERISA.
7.5 Action by Company. Any action by the Company under the Plan shall
be by a duly adopted resolution of the Board of Directors or by any person or
persons duly authorized by a duly adopted resolution of that Board to take such
action.
16
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Article VIII. Administration
- --------------------------------------------------------------------------------
8.1 Duties and Responsibilities of Fiduciaries; Allocation of
Responsibility Among Fiduciaries for Plan and Trust Administration. A Fiduciary
shall have only those specific powers, duties, responsibilities and obligations
as are specifically given him under this Plan or the Trust. In general, the
Employer, shall have the sole responsibility for making the contributions
provided for under Section 6.1. The Board of Directors shall have the sole
authority to appoint and remove the Trustee and the Administrative Committee and
to amend or terminate, in whole or in part, this Plan or the Trust. The
Administrative Committee shall have the sole responsibility for the
administration of this Plan, which responsibility is specifically described in
this Plan and the Trust. The Administrative Committee also shall have the right
to appoint and remove any Investment Manager which may be provided for under the
Trust and to designate investment and funding policies under which the Trustee
and any Investment Manager shall act, which provisions are described in Section
6.3. Except as provided in the Trust agreement and within the scope of any
funding and investment policies designated by the Administrative Committee the
Trustee shall have the sole responsibility for the administration of the Trust
and the management of the assets held under the Trust. It is intended that each
Fiduciary shall be responsible for the proper exercise of his own powers,
duties, responsibilities and obligations under this Plan and the Trust and
generally shall not be responsible for any act or failure to act of another
Fiduciary. A Fiduciary may serve in more than one fiduciary capacity with
respect to the Plan (including service both as Trustee and as a member of the
Administrative Committee).
8.2 Allocation of Duties and Responsibilities. The Administrative
Committee shall be appointed by the Board of Directors and shall have the sole
responsibility for actual administration of the Plan, as delegated by the Board
of Directors. The Administrative Committee may also adopt amendments to the
Plan, which upon advice of counsel, it deems necessary or advisable to comply
with ERISA or the Code, or any other applicable law, or to facilitate the
administration of the Plan. The Administrative Committee may designate persons
other than their members to carry out any of its duties and responsibilities.
Any duties and responsibilities thus allocated must be described in the written
instrument. If any person other than an Eligible Employee of the Employer is so
designated, such person must acknowledge in writing his acceptance of the duties
and responsibilities thus allocated to him. All such instruments shall be
attached to, and shall be made a part of, the Plan.
8.3 Administration and Interpretation. Subject to the limitations of
the Plan, the Administrative Committee shall have complete authority and control
regarding the administration and interpretation of the Plan and the transaction
of its business, and shall, from time to time, establish such rules as may be
necessary or advisable in connection therewith. To the extent permitted by law,
all acts and determinations of the Administrative Committee, as to any disputed
question or otherwise, shall be binding and conclusive upon Participants,
retired Participants, Employees, Spouses, Beneficiaries and all other persons
dealing with the Plan. The Administrative Committee may deem its records
conclusively to be correct as to the matters reflected therein with respect to
information furnished by an Employee. All actions, decisions and interpretations
of the Administrative Committee in administering the Plan shall be performed in
a uniform and nondiscriminatory manner.
8.4 Expenses. The Employer shall pay all expenses authorized and
incurred by the Administrative Committee in the administration of the Plan
except to the extent such expenses are paid from the Trust.
8.5 Claims Procedure:
(a) Filing of Claim. Any Participant, Former Participant or
Beneficiary under the Plan ("Claimant"), may file a written claim for a Plan
benefit with the Administrative Committee or with a person named by the
Administrative Committee to receive claims under the Plan.
(b) Notification on Denial of Claim. In the event of a denial
or limitation of any benefit or payment due to or requested by any Claimant, he
shall be given a written notification containing specific reasons for the denial
or limitation of his benefit. The written notification shall contain specific
reference to the pertinent Plan provisions on which the denial or limitation of
benefits is based. In addition, it shall contain a description of any additional
material or information necessary for the Claimant to perfect a claim and an
explanation of why such material or information is necessary. Further, the
notification shall provide appropriate information as to the steps to be taken
17
<PAGE>
if the Claimant wishes to submit his claim for review. This written notification
shall be given to a Claimant within 90 days after receipt of his claim by the
Administrative Committee unless special circumstances require an extension of
time to process the claim. If such an extension of time for processing is
required, written notice of the extension shall be furnished to the Claimant
prior to the termination of said 90-day period and such notice shall indicate
the special circumstances which make the postponement appropriate. Such
extension shall not extend to a date later than 120 days after receipt of the
request for review of a claim.
(c) Right of Review. In the event of a denial or limitation of
benefits, the Claimant or his duly authorized representative shall be permitted
to review pertinent documents and to submit to the Administrative Committee
issues and comments in writing. In addition, the Claimant or his duly authorized
representative may make a written request for a full and fair review of his
claim and its denial by the Administrative Committee provided, however, that
such written request must be received by the Administrative Committee (or his
delegate to receive such requests) within sixty days after receipt by the
Claimant of written notification of the denial or limitation of the claim. The
sixty day requirement may be waived by the Administrative Committee in
appropriate cases.
(d) Decision on Review.
(i) A decision shall be rendered by the
Administrative Committee within 60 days after the receipt of the request for
review, provided that where special circumstances require an extension of time
for processing the decision, it may be postponed on written notice to the
Claimant (prior to the expiration of the initial 60 day period), for an
additional 60 days, but in no event shall the decision be rendered more than 120
days after the receipt of such request for review.
(ii) Notwithstanding subparagraph (i), if the
Administrative Committee specifies a regularly scheduled time at least quarterly
to review such appeals, a Claimant's request for review will be acted upon at
the specified time immediately following the receipt of the Claimant's request
unless such request is filed within 30 days preceding such time. In such
instance, the decision shall be made no later than the date of the second
specified time following the Administrative Committee's receipt of such request.
If special circumstances (such as a need to hold a hearing) require a further
extension of time for processing a request, a decision shall be rendered not
later than the third specified time of the Administrative Committee following
the receipt of such request for review and written notice of the extension shall
be furnished to the Claimant prior to the commencement of the extension.
(iii) Any decision by the Administrative Committee
shall be furnished to the Claimant in writing and in a manner calculated to be
understood by the Claimant and shall set forth the specific reason(s) for the
decision and the specific Plan provision(s) on which the decision is based.
8.6 Records and Reports. The Administrative Committee shall exercise
such authority and responsibility as it deems appropriate in order to comply
with ERISA and governmental regulations issued thereunder relating to records of
Participants' account balances and the percentage of such account balances which
are nonforfeitable under the Plan; notifications to Participants; and annual
reports and registration with the Internal Revenue Service.
8.7 Other Powers and Duties. The Administrative Committee shall have
such duties and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following:
(a) to construe and interpret the Plan, decide all questions
of eligibility and determine the amount, manner and time of payment of any
benefits hereunder;
(b) to prescribe procedures to be followed by Participants,
Former Participants or Beneficiaries filing applications for benefits;
(c) to prepare and distribute information explaining the Plan;
(d) to receive from the Employer and from Participants, Former
Participants and Beneficiaries such information as shall be necessary for the
proper administration of the Plan;
(e) to furnish the Employer, upon request, such annual reports
with respect to the administration of the Plan as are reasonable and
appropriate;
(f) to receive, review and keep on file (as it deems
convenient or proper) reports of the financial condition, and of the receipts
and disbursements, of the Trust Fund from the Trustees;
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(g) to appoint or employ advisors including legal and
actuarial counsel to render advice with regard to any responsibility of the
Administrative Committee under the Plan or to assist in the administration of
the Plan; and
(h) to determine the status of qualified domestic relations
orders under Section 414(p) of the Code.
The Administrative Committee shall have no power to add to, subtract
from or modify any of the terms of the Plan, or to change or add to any benefits
provided by the Plan, or to waive or fail to apply any requirements of
eligibility for a benefit under the Plan.
8.8 Rules and Decisions. The Administrative Committee may adopt such
rules as it deems necessary, desirable, or appropriate. All rules and decisions
of the Administrative Committee shall be applied uniformly and consistently to
all Participants in similar circumstances. When making a determination or
calculation, the Administrative Committee shall be entitled to rely upon
information furnished by a Participant, Former Participant or Beneficiary, the
Employer, the legal counsel of the Employer, or the Trustee.
8.9 Authorization of Benefit Payments. The Administrative Committee
shall issue proper directions to the Trustee concerning all benefits which are
to be paid from the Trust Fund pursuant to the provisions of the Plan.
8.10 Application and Forms for Benefits. The Administrative Committee
may require a Participant, Former Participant or Beneficiary to complete and
file with it an application for a benefit, and to furnish all pertinent
information requested by it. The Administrative Committee may rely upon all such
information so furnished to it, including the Participant's, Former
Participant's or Beneficiary's current mailing address.
8.11 Facility of Payment. Whenever, in the Administrative Committee's
opinion, a person entitled to receive any payment of a benefit or installment
thereof hereunder is under a legal disability or is incapacitated in any way so
as to be unable to manage his financial affairs, the Administrative Committee
may direct the Trustee to make payments to such person or to his legal
representative or to a relative or friend of such person for his benefit, or he
may direct the Trustee to apply the payment for the benefit of such person in
such manner as it considers advisable.
8.12 Indemnification. The Employer shall indemnify each individual who
is an officer, director or Employee of the Employer and who may be called upon
or designated to perform fiduciary duties or to exercise fiduciary authority or
responsibility with respect to the Plan and shall save and hold him harmless
from any and all claims, damages, and other liabilities, including without
limitation all expenses (including attorneys' fees and costs), judgments, fines
and amounts paid in settlement and actually and reasonably incurred by him in
connection with any action, suit or proceeding, resulting from his alleged or
actual breach of such duties, authority or responsibility, whether by
negligence, gross negligence or misconduct, to the maximum extent permitted by
law, provided, however, that this indemnification shall not apply with respect
to any actual breach of such duties, authority or responsibility, if the
individual concerned did not act in good faith and in the manner he reasonably
believed to be in (or not opposed to) the best interest of the Employer, or,
with respect to any criminal action or proceeding, had reasonable cause to
believe his conduct was unlawful.
8.13 Resignation or Removal of the Administrative Committee. An
Administrative Committee member may resign at any time by giving ten days'
written notice to the Employer and the Trustee. The Board of Directors may
remove any member of the Administrative Committee by giving written notice to
him and the Trustee. Any such resignation or removal shall take effect at a date
specified on such notice, or upon delivery to the Administrative Committee if no
date is specified.
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Article IX. Limitations On Contributions And Benefits
- --------------------------------------------------------------------------------
9.1 Determination by Internal Revenue Service. Contributions to the
Trust Fund are conditioned specifically upon the initial qualification of the
Plan under the Code and if the Plan does not so initially qualify, such
contribution or part thereof shall be returned to the Employer within one year
after such denial of initial qualification.
9.2 Conditional Contributions. To the extent permitted under ERISA and
the Code, all contributions to the Plan are subject to the following conditions:
(a) All contributions made to the Plan by the Employer shall
be conditioned upon the deductibility of such contributions under the Code. To
the extent that any such deduction is disallowed by the Internal Revenue
Service, the Employer by action of the Administrative Committee shall have the
right to demand and receive the return of the related contribution to the extent
disallowed within one year after the disallowance of said deduction.
(b) If the Employer makes a contribution, or any part thereof,
by mistake of fact, such contribution or part thereof shall be returned to the
Employer within one year after such contribution is made.
9.3 Twenty-Five HCE Limitation. Effective for Plan Years commencing on
or after January 1, 1991, the annual payments made by the Plan to any individual
who is one of the twenty-five (25) highest-paid Highly Compensated Employees,
for any Plan Year, shall not exceed the limitations set forth in Treas. Reg.
Section 1.401(a)(4)-5.
9.4 General Limitation on Benefits. In addition to the limitations
possibly applicable by reason of Section 9.3, and any other provision of the
Plan to the contrary notwithstanding, the annual benefit payable to any
Participant or Former Participant shall not exceed the limitations imposed by
Section 415 of the Code. The provisions of Section 415 of the Code are
incorporated into this Plan by reference. If a Participant's participation in
other plans maintained by the Employer or an Affiliate would result in a
violation of the limitations of Section 415 of the Code, the Participant's
benefit under this Plan shall be reduced to the extent necessary to satisfy
Section 415 of the Code.
9.5 Suspension of Benefits on Reemployment.
(a) In the event that any person receiving benefits under the
Plan by reason of retirement is reemployed by the Employer, the Plan shall
suspend the payment of benefits as of the first day of the month following the
first month in which an Eligible Employee receives payment from the Employer for
at least 80 Hours of Service performed during a calendar month during such
person's reemployment;
(b) Benefits suspended hereunder shall resume as of the first
day of the third month commencing after the earlier of the day the reemployed
person Terminates employment with the Employer or, if such person is an Eligible
Employee, receives payment from the Employer for any Hours of Service performed
for fewer than 80 Hours of Service during a calendar month in such reemployed
status;
(c) Any person whose benefits are suspended under this Section
shall be entitled to receive a pension on subsequent retirement or Termination
that is not less than the pension received as of the date of suspension
hereunder. The person's resumed pension shall be determined on the basis of the
Participant's Compensation and Years of Credited Service before the suspension
hereunder and Compensation and Years of Credited Service after his reemployment,
reduced however, by the value of any pension benefits paid to him previously
either (i) prior to his Normal Retirement Date; or (ii) while reemployed by the
Employer under circumstances in which his benefits should have been suspended
under paragraph (a), but were not.
(d) Any Participant whose benefits are suspended pursuant to
the foregoing shall be notified in writing of the suspension by personal
delivery or first class mail during the first calendar month or payroll period
in which benefits are suspended.
(e) The Annuity Starting Date with respect to a Participant
who is reemployed after commencement of his benefits at Normal Retirement Date,
shall be the date his benefits originally commenced for benefits accrued before
and after the suspension.
(f) The Annuity Starting Date with respect to a Participant
who is reemployed after commencement of his benefits at Early Retirement Date
shall be:
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(1) the date his benefits originally commenced with
respect to the benefits accrued prior to the suspension; and
(2) with respect to the benefits he accrued after his
reemployment (if any), and the suspension of his original benefit payments
hereunder, the date such subsequent accruals commence to be paid. The provisions
of Section 4.6(d) of the Plan shall apply to such subsequent accruals as a
second Annuity Starting Date.
21
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Article X. Merger, Transfer Or Consolidation Of Plans
- --------------------------------------------------------------------------------
10.1 Plan Assets. There shall be no merger or consolidation of the Plan
with, or transfer of assets or liabilities of the Fund to, any other plan of
deferred compensation maintained or to be established for the benefit of all or
some of the Participants of the Plan, unless each Participant would (if either
this Plan or the other plan then terminated) receive a benefit immediately after
the merger, consolidation or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the merger,
consolidation or transfer (if this Plan had then terminated), and unless a duly
adopted resolution of the Board of Directors authorizes such merger,
consolidation or transfer of assets.
22
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- --------------------------------------------------------------------------------
Article XI. Miscellaneous
- --------------------------------------------------------------------------------
11.1 Mandatory Commencement of Benefits. Notwithstanding any provision
of this Plan to the contrary, payment of benefits under this Plan shall commence
upon the written election of a Participant or Former Participant not later than
sixty days after the close of the Plan Year in which the latest of the following
events occurs: (a) the Participant attains Normal Retirement Date; (b) the tenth
anniversary of the Plan Year in which the Participant commenced participation in
the Plan; or (c) the Termination of the Participant's service with the Employer.
11.2 Nonguarantee of Employment. Nothing contained in this Plan shall
be construed as a contract of employment between the Employer and any Eligible
Employee, or as a right of any Eligible Employee to be continued in the
employment of the Employer, or as a limitation of the right of the Employer to
discharge any of its Eligible Employees with or without cause.
11.3 Rights to Fund Assets. No Eligible Employee or Beneficiary shall
have any right to, or interest in, any assets of the Fund upon Termination of
his employment or otherwise, except as provided from time to time under this
Plan, and then only to the extent of the benefits payable under the Plan to such
Eligible Employee out of the assets of the Fund. All payments of benefits as
provided for in this Plan shall be made solely out of the assets of the Fund.
11.4 Nonalienation of Benefits. Benefits payable under this Plan shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumber, charge, garnishment, execution, or levy of any
kind, either voluntary or involuntary, including any such liability which is for
alimony or other payments for the support of a spouse or former spouse, or for
any other relative of the Eligible Employee prior to actually being received by
the person entitled to the benefit under the terms of the Plan, except as
required under a qualified domestic relations order as defined in Section 414(p)
of the Code. Any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, charge or otherwise dispose of any right to benefits payable
hereunder, shall be void. The Fund shall not in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements or torts of any
person entitled to benefits hereunder.
11.5 Inability to Locate Payee. Each person entitled to receive
benefits under the Plan shall be responsible for informing the Administrative
Committee of his mailing address for purposes of receiving such benefits. If the
Administrative Committee is unable to locate any person entitled to receive
benefits under the Plan, such benefits shall not be forfeited but shall be
carried as a contingent liability of the Plan and shall be payable when a proven
and legitimate claim therefor has been submitted to the Administrative
Committee.
11.6 Applicable Law. This Plan shall be construed, interpreted,
administered and enforced in accordance with the laws of the Commonwealth of
Pennsylvania, except to the extent superseded, only when required, by ERISA as
in effect from time to time.
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Article XII. Determination Of Top-Heavy Status
- --------------------------------------------------------------------------------
12.1 General. Notwithstanding any other provision of the Plan to the
contrary, for any Plan Year, in which the Plan is Top-Heavy or Super Top-Heavy,
as defined below, the provisions of this Article 12 shall apply, but only to the
extent required by Section 416 of the Code and the regulations thereunder.
12.2 Top-Heavy Plan. This Plan shall be Top-Heavy and an Aggregation
Group shall be Top-Heavy if as of the Determination Date for such Plan Year, the
sum of the Cumulative Accrued Benefits and Cumulative Accounts of Key Eligible
Employees for the Plan Year exceeds 60% of the aggregate of all the Cumulative
Accounts and Cumulative Accrued Benefits. The Cumulative Accrued Benefits and
Cumulative Accounts of those Participants who have not performed any service for
the Employer during the five year period ending on the Determination Date, shall
be disregarded.
(a) If the Plan is not included in a Required Aggregation
Group with other plans, then it shall be Top-Heavy only if (i) when considered
by itself it is Top-Heavy and (ii) it is not included in a Permissive
Aggregation Group that is not Top-Heavy.
(b) If the Plan is included in a Required Aggregation Group
with other plans, it shall be Top-Heavy only if the Required Aggregation Group,
including any permissively aggregated plans, is Top-Heavy.
12.3 Super Top-Heavy Plan. This Plan shall be Super Top-Heavy if it
would be Top-Heavy under Section 12.2, but substituting 90% for 60%.
12.4 Cumulative Accrued Benefits and Cumulative Accounts. The
determination of the Cumulative Accrued Benefits and Cumulative Accounts under
the Plan shall be made in accordance with Section 416 of the Code and the
regulations thereunder.
12.5 Definitions.
(a) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group.
(b) "Determination Date" means with respect to any Plan Year,
the last day of the preceding Plan Year or in the case of the first Plan Year of
any plan, the last day of such Plan Year or such other date as permitted by the
Secretary of the Treasury or his delegate.
(c) "Group Employer" means the Employer that adopts this Plan
and all members of a controlled group of corporations (as defined in Section
414(b) of the Code), all commonly controlled trades or businesses (as defined in
Section 414(c) of the Code), all affiliated service groups (as defined in
Section 414(m) of the Code) and any other affiliated entities (as provided in
Section 414(o) of the Code) of which the Employer is a part.
(d) "Key Eligible Employee" means those individuals described
in Section 416(i)(1) of the Code and the regulations thereunder.
(e) "Non-Key Eligible Employee" means those Eligible Employees
who are not Key Eligible Employees and includes a former Key Eligible Employee.
(f) "Permissive Aggregation Group" means a Required
Aggregation Group plus any other plans selected by the Company provided that all
such plans when considered together satisfy the requirements of Section
401(a)(4) and 410 of the Code.
(g) "Required Aggregation Group" means each plan of the
Employer in which a Key Eligible Employee participates (in the Plan Year
containing the Determination Date or any of the four preceding Plan Years) and
each other plan which enables any plan in which a Key Eligible Employee
participates during the period tested to meet the requirements of Section
401(a)(4) or 410 of the Code. All employers aggregated under Section 414(b), (c)
or (m) of the Code are considered a single employer. The Required Aggregation
Group shall include any terminated plan that covered a Key Eligible Employee and
was maintained within the five year period ending on the Determination Date.
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<PAGE>
(h) "Valuation Date" means the annual date on which Plan
assets must be valued for purposes of determining the Plan's assets and
liabilities and the value of account balances maintained under any defined
contribution plan of the Employer. The valuation date for purposes of the
preceding sentence shall be the same valuation date for computing Plan costs for
minimum funding.
12.6 Minimum Annual Retirement Benefit.
(a) Each Participant who is a Non-Key Eligible Employee will
receive the greater of his Accrued Annual Pension as defined in Section 2.1 or a
Minimum Annual Retirement Benefit (expressed as a life annuity commencing at
Normal Retirement Date) equal to two percent of the Participant's average
compensation (as determined under any permissible definitions under Section 415
of the Code and the regulations thereunder) but limited in amount under Section
401(a)(17) of the Code for the five consecutive years for which the Participant
had the highest aggregate compensation multiplied by the Participant's Years of
Credited Service with the Employer, up to a maximum of 20%.
(b) For purposes of this Section 12.6, Years of Credited
Service shall not include service if the Plan were not Top-Heavy for any Plan
Year ending in such period of Years of Credited Service or Years of Credited
Service completed in a Plan Year commencing before January 1, 1984. For purposes
of this Section 12.6, compensation in years prior to January 1, 1984 and
compensation in years after the close of the last Plan Year in which the Plan is
Top-Heavy shall be disregarded.
(c) A Minimum Annual Retirement Benefit shall not be provided
under this Section 12.6 to the extent that the Participant is covered under any
other plan or plans of the Group Employer and the Group Employer has provided
that the minimum benefit requirements applicable to this Plan will be met by the
other plan or plans.
(d) A Participant who is a Non-Key Eligible Employee shall not
fail to accrue a Minimum Annual Retirement Benefit because of (i) his level of
Compensation or (ii) a failure to make mandatory Eligible Employee
contributions.
12.7 Vesting. A Participant who is credited with one Hour of Service in
any Plan Year during which the Plan is Top-Heavy or Super Top-Heavy shall have a
nonforfeitable interest in that portion of his Normal Annual Pension, Accrued
Annual Pension or Minimum Annual Retirement Benefit attributable to
participation during the Plan Year in which the Plan is Top-Heavy or Super
Top-Heavy and all prior Plan Years in accordance with the following schedule:
Years of Service Nonforfeitable Percentage
----------------- -------------------------
less than 2 years 0
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
If the Plan ceases to be Top-Heavy in any Plan Year, the vesting provisions of
Section 5.1 determined without regard to this Section 12.7, shall apply with
respect to subsequent Plan Years, subject to Section 7.2(b).
12.8 Defined Benefit and Defined Contribution Plans. For each Plan Year
in which the Plan is Super Top-Heavy or for each Plan Year in which the Plan is
Top-Heavy and the additional minimum benefits or contributions required by
Section 416(h) of the Code are not provided, the dollar limitations in the
denominator of the defined benefit plan fraction and defined contribution plan
fraction as defined in Section 415(e) of the Code shall be multiplied by 100
percent rather than 125 percent. If the application of the provisions of this
Section 12.8 would cause any Participant to exceed 1.0 for any Limitation Year
as set forth in Section 9.4, then the application of this Section 12.8 shall be
suspended as to such Participant until such time as he no longer exceeds 1.0.
During the period of such suspension, there shall be no accruals for such
Participant under this Plan and no Group Employer contributions, forfeitures or
voluntary nondeductible contributions allocated to such Participant under any
defined contribution plan of the Group Employer.
25
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- --------------------------------------------------------------------------------
Article XIII. ERISA Transition Provisions
- --------------------------------------------------------------------------------
13.1 Scope and Purpose. The provisions of this Article XIII shall apply
only to those Participants or Former Participants who were Participants on
December 14, 1976 and Employees on December 15, 1976. The purpose of this
Article XIII is to preserve for those Participants or Former Participants
certain of the provisions of the Plan as in effect before December 15, 1976.
13.2 Calculation of Benefit. With respect to a Participant or Former
Participant covered by this Section 13.2, the Participant's or Former
Participant's monthly benefit at his Normal Retirement Date under the Plan shall
be the greater of (i) the Participant's or Former Participant's benefit
calculated under Section 4.1 or (ii) one-twelfth of the product of (A) and (B),
but not in excess of $625, where (A) equals 45% of the Participant's or Former
Participant's "Basic Salary" on December 15, 1975 and (B) equals a fraction, the
numerator of which is the Participant's or Former Participant's total number of
"Years of Participation" at December 14, 1976 and the denominator of which is
the total number of "Years of Participation" with which he would have been
credited if he separated from service on the "Anniversary Date" nearest his 65th
birthday, all as defined under the terms of the Plan as in effect on December
14, 1976. Such amount is set forth in Schedule A, Column 1.
13.3 Form of Payment of Normal, Late, Early and Disability Benefit. In
addition to the forms of settlement provided under Section 4.6(e), a Participant
or Former Participant covered under this Article XIII, shall be entitled to
elect in writing on forms provided by the Administrative Committee payment of
the "value of the accrued benefit" (as determined under Section 13.7) to which
he is entitled under Schedule A, Column 2, increased by interest at the rate of
5% per annum from December 14, 1976 to the date of determination, counting only
completed months, in a lump sum upon Normal, Late, Early or Disability
Retirement in accordance with the provisions of Sections 4.1, 4.2, 4.3 or 4.4.
In the event a Participant or Former Participant elects payment of some or all
of the amount of the "value of the accrued benefit" to which he is entitled
under Schedule A, Column 2, increased by interest as described in the preceding
sentence, in a lump sum, the "actuarial value" (as determined under Section
13.7) of the benefit to which he is otherwise entitled under Article IV shall be
reduced by the amount of such payment and the "remaining value", if any, will be
paid in a form provided by Section 4.6(e) of the Plan. However, any Participant
or Former Participant covered under this Article XIII, the value of whose
benefit under Schedule A, Column 2, without increase, is $20,000 or more,
alternatively may elect in writing, on forms provided by the Administrative
Committee, payment of the value of the entire benefit to which he is entitled
under the Plan in an "actuarially equivalent" (as determined under Section 13.6)
lump sum upon Normal, Late, Early or Disability Retirement in accordance with
the provisions of Section 4.6.
Notwithstanding the foregoing, effective January 1, 1989, any
Participant covered under this Section 13, who is a Highly Compensated Employee,
determined as of any date, and the value of whose benefit under Schedule A,
Column 2, without increase, is $20,000 or more, alternatively may elect in
writing, on forms provided by the Administrative Committee payment of (i) the
value of the benefit which he had accrued as of December 31, 1988 under the Plan
in an actuarially equivalent lump sum (as determined under Section 13.7) upon
Normal, Late, Early or Disability Retirement in accordance with the provisions
of Section 4.1, 4.2, 4.3 or 4.4; and (ii) the remainder of his Accrued Annual
Pension, which he had accrued after December 31, 1988, paid to him in one of the
forms provided for under Section 4.6 of the Plan.
13.4 Payment of Vested Benefits. Any Participant or Former Participant
covered under this Article XIII who terminates employment with the Employer and
all Affiliates with a nonforfeitable benefit under Section 5.1 may elect in
writing on forms provided by the Administrative Committee to receive the value
of his benefit under Schedule A, Column 2, increased by interest at the rate of
5% per annum from December 14, 1976 to the date of determination, counting only
completed months, in a lump sum. The "remaining value" of his benefit, if any,
shall be paid in accordance with Section 4.6(e). Any such Participant or Former
Participant, the value of whose accrued benefit under Schedule A, Column 2,
without increase, is $20,000 or more, alternatively may elect in writing, on
forms provided by the Administrative Committee, payment of the value of the
entire benefit to which he is entitled under the Plan in an "actuarially
equivalent" lump sum.
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<PAGE>
Notwithstanding the foregoing, effective January 1, 1989, any
Participant covered under this Section 13, who is a Highly Compensated Employee,
determined as of any date, and the value of whose benefit under Schedule A,
Column 2, without increase, is $20,000 or more, alternatively may elect in
writing, on forms provided by the Administrative Committee, payment of (i) only
the value of the benefit which he had accrued as of December 31, 1988 under the
Plan in an actuarial equivalent lump sum (as determined under Section 13.7) upon
his Termination of employment in accordance with the provisions of Section 4.5;
and (ii) the remainder of his Accrued Annual Pension, which he had accrued after
December 31, 1988, paid to him in one of the forms provided for under Section
4.6 of the Plan.
If a Participant or Former Participant who receives a distribution
hereunder returns to service covered by the Plan, his prior service shall be
restored for purposes of benefit accrual if he contributes to the Trust Fund in
cash the amount of the distribution he received, together with interest thereon
at the rate set forth in Section 411(c)(2)(C) of the Code per annum, compounded
annually, before suffering five consecutive Breaks in Service or five years
following the date he is reemployed by the Employer, if earlier. If the
Participant or Former Participant does not make such a contribution as provided
above, his Accrued Annual Pension upon subsequent termination of service shall
be based on accruals arising from and after his return to service under the
terms of the Plan plus any "remaining value" of his benefit at the date of his
previous termination of service not paid hereunder upon his previous termination
of service.
13.5 Death Benefits. The Beneficiary of any Participant or Former
Participant covered under this Article XIII who attained his Normal Retirement
Date, as defined under the terms of the Plan as in effect on December 14, 1976,
on or before December 14, 1976, and dies on or after December 15, 1976, but
prior to the earlier of the date (i) benefit payments to him commence or (ii) an
annuity contract is purchased to provide his retirement benefit, shall be
entitled to receive a death benefit equal to the "actuarial value" at the time
of death of such Participant's or Former Participant's accrued benefit under
Schedule A, Column 2. The benefit will be paid in the mode of distribution
designated by the Participant or Former Participant in writing; provided,
however, if the Participant's or Former Participant's designated Beneficiary
should die on or before the commencement of distribution of benefits or the
Participant or Former Participant fails to designate the mode of distribution,
the mode of distribution shall be determined by the Administrative Committee
after consultation with the Participant's or Former Participant's Beneficiary.
Notwithstanding the foregoing, if the Participant or Former Participant is
married, the Participant's or Former Participant's Spouse shall be the
Beneficiary unless the Spouse waives the right to be the Beneficiary in writing
witnessed by a notary public or a member of the Administrative Committee in
accordance with the rules established by the Administrative Committee.
Notwithstanding the foregoing, effective January 1, 1989, any
Participant covered under this Section 13, who is a Highly Compensated Employee,
determined as of any date, and the value of whose benefit under Schedule A,
Column 2, without increase, is $20,000 or more, alternatively may elect in
writing, on forms provided by the Administrative Committee, payment of (i) the
value of the benefit which he had accrued as of December 31, 1988 under the Plan
in an actuarial equivalent lump sum (as determined under Section 13.7) upon his
death paid to his Beneficiary; and (ii) the remainder of his Accrued Annual
Pension, which he had accrued after December 31, 1988, paid to his Beneficiary
in the form provided for under Section 4.7 of the Plan.
13.6 Transfer of Benefit.
(i) Any Participant or Former Participant (A) who has reached
his Normal Retirement Date on or before December 15, 1976, (B) whose benefit is
calculated under the Plan as effective prior to December 15, 1976 and (C) whose
benefit payments have not started prior to October 9, 1979, shall be entitled to
elect irrevocably in writing as hereinafter provided that the Administrative
Committee transfer the amount of his accrued benefit to be held as a separate
bookkeeping account under the terms of the Trust Agreement. The election may be
made effective as of the January 1st or July 1st next following the delivery of
a written request to the Administrative Committee at least 30 days before such
date.
(ii) In addition to the forms of settlement provided under
Section 4.6, a Participant or Former Participant covered under this Section
13.5, shall be entitled to elect in writing on forms provided by the
Administrative Committee one of the following settlement options:
(A) approximately equal monthly, quarterly or annual
installments as elected by the Participant or Former Participant over a period
not exceeding the life expectancy of the Participant or Former Participant or
the joint life expectancy of the Participant or Former Participant and his
designated Beneficiary with the remainder of such installments, if any, after
the Participant's or Former Participant's death payable to his designated
beneficiary or Beneficiaries; or
27
<PAGE>
(B) a lump sum; or
(C) any combination of the above.
Notwithstanding the foregoing, the Participant or Former Participant
must elect under this Section 13.5(ii) or 4.6(e) a method of settlement under
which the present value of the installments to be paid to the Participant or
Former Participant over his projected life span is more than 50% of the present
value of the installments payable to both the Participant or Former Participant
and his Beneficiary or Beneficiaries.
(iii) The Beneficiary of any Participant or Former Participant
eligible to make the election under Section 13.6(i) who is to receive death
benefits under Section 13.5, may subject to the approval of the Administrative
Committee, request that the value of the death benefit be held as a separate
bookkeeping account under the terms of the Trust Agreement, with distribution to
be made in the mode provided for under Section 13.5.
13.7 Actuarial Equivalency. With respect to Article XIII, when
referring to amounts developed under Article IV, "actuarial value", "remaining
value", "actuarial equivalent" and "value of the accrued benefit" shall be
determined using GAM71 Male mortality table and interest at the rate of 5.5% per
annum. However, the value so determined for any Participant or Former
Participant to whom this Article XIII applies shall not be less than the
actuarial value of the accrued benefit for that Participant or Former
Participant as of July 31, 1983, determined using the GAM71 Male and Female (as
appropriate) mortality table and interest at the rate of 5.5% per annum. When
referring to amounts developed from Schedule A, Column 2, the amount of accrued
benefits and actuarial equivalents shall be determined as described, using
interest at the rate of 5% per annum.
Effective with respect to any lump sum distribution or the value of
amounts developed pursuant to this Article XIII with respect to any Participant
whose employment Terminates on or after January 1, 1998, the value of such
benefit shall be determined in accordance with the foregoing assumptions;
provided, however, that in no event shall the amount be less than the amount
determined using the assumptions set forth in paragraph (b) of the definition of
Actuarial Equivalence.
28
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Appendix A
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Participating Employers
The Pep Boys -- Manny, Moe & Jack
The Pep Boys -- Manny, Moe & Jack of California
Pep Boys -- Manny, Moe & Jack of Delaware, Inc. (effective 1/29/95)
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Exhibit 10.29
10/25/94
12/27/94
3/7/96
4/8/96
7/2/97
12/15/97
4/22/98
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The Pep Boys
Savings Plan
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<PAGE>
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Table Of Contents
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I: Introduction.........................................................1
II: Definitions And Construction.........................................2
III: Participation And Service...........................................15
IV: Employer Contributions..............................................17
V: Allocations To Participants' Accounts...............................30
VI: Payment Of Benefits.................................................36
VII: Trust Fund..........................................................46
VIII: Administration......................................................49
IX: Miscellaneous.......................................................56
X: Amendments And Action By Employer...................................57
XI: Successor Employer And Merger Or Consolidation Of Plans.............59
XII: Plan Termination....................................................60
XIII: Determination Of Top-Heavy Status...................................61
Appendix A.....................................................................
Appendix B.....................................................................
<PAGE>
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I: Introduction
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The Pep Boys Savings Plan was established by The Pep Boys -- Manny, Moe
& Jack, a Pennsylvania corporation, effective September 1, 1987, for the benefit
of certain of its salaried and hourly employees and its Participating Employers,
and their beneficiaries. It is to be maintained according to the terms of this
instrument. The Committee has the authority to manage the administration of this
Plan. The assets of this Plan are held in trust by the Trustee in accordance
with the terms of the Trust Agreement, which is considered to be an integral
part of this Plan. Except as may be provided in the Trust Agreement, the Trustee
has the exclusive authority to manage and control the assets of this Plan.
The Plan is intended to be a discretionary "profit sharing" plan as
defined in Section 401(a)(27) of the Code.
The Plan is hereby amended effective January 1, 1989 to reflect various
provisions of the Tax Reform Act of 1986, as amended, and other legislation (or
such earlier date as required by law). The effective date of any other changes
to the Plan shall be as noted herein.
1
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II: Definitions And Construction
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2.1 Definitions. The following words and phrases, when used in this
Plan, shall have the following meanings:
Accounts means a Participant's Pre-Tax Contribution Account, Matching
Contribution Account, Discretionary QNEC Account and Rollover Account.
Affiliate means any employer which has not adopted this Plan
and is not a Participating Employer, but which is included as a member with the
Employer in a controlled group of corporations, or which is a trade or business
(whether or not incorporated) included with the Employer in a brother-sister
group or combined group of trades or businesses under common control or which is
a member of an affiliated service group in which the Employer is a member,
determined in each instance in accordance with Sections 414(b), (c), (m) and (o)
of the Code.
Annual Additions means, with respect to each Limitation Year,
the total of the Employer contributions and forfeitures allocated to a
Participant's Accounts pursuant to the provisions of this Plan, plus the total
of any Participant contributions for such Limitation Year, plus amounts
described in sections 415(l)(1) and 419A(d)(2) of the Code, if any. Annual
Additions also shall include any additions to the account of a Participant under
any other qualified defined contribution plan maintained by the Employer or an
Affiliate.
For purposes of determining Annual Additions, Compensation for
any Limitation Year shall mean the Compensation paid to a Participant by the
Employer and any Affiliate and shall include a Participant's earned income,
wages, salaries, and fees for professional services and other amounts received
for personal services actually rendered in the course of employment with the
Employer or Affiliate (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips and bonuses), and excluding the following:
(1) Employer or Affiliate contributions to a plan of deferred
compensation which are not includable in the Employee's gross income for the
taxable year in
2
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which contributed, or Employer or Affiliate contributions which are deductible
by the Employee, or any distribution from a plan of deferred compensation;
(2) Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the Employee either becomes
freely transferable or is no longer subject to a substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(4) Other amounts which receive special tax benefits or contributions
made by the Employer or an Affiliate (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Section 403(b) of the
Code (whether or not the amounts are actually excludable from the gross income
of the Employee).
Effective January 1, 1998, amounts described in this paragraph (4) shall
not be excluded from compensation for purposes of Annual Additions.
Beneficiary means a person or persons (natural or otherwise) designated
by a Participant in accordance with the provisions of Section 6.6 (or deemed to
have been designated) to receive any death benefit which shall be payable under
this Plan.
Board of Directors means the Board of Directors of The Pep Boys --
Manny, Moe & Jack.
Calendar Quarter means the three consecutive month periods beginning
each January 1, April 1, July 1 and October 1.
Code means the Internal Revenue Code of 1986, as it may be amended, and
includes any regulations issued thereunder.
Committee means the individuals appointed under Section 8.1 to
administer the Plan.
Company means The Pep Boys -- Manny, Moe & Jack, a corporation organized
and existing under the laws of Pennsylvania, or its predecessor company, its
successor or successors which elect to continue this Plan.
Company Stock means the Company's Common Stock, par value of $1.00 per
share.
3
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Compensation means the total of all remuneration paid during a Plan Year
to a Participant by the Employer for personal services, including overtime pay,
bonuses and commissions, as reported to a Participant on Box 1 of Form W-2 (Box
10 prior to 1993) and unless specifically excluded hereunder, Pre-Tax
Contributions, if any, authorized by a Participant under this Plan, but
excluding reimbursement for business, travel or entertainment expenses incurred
by the Participant and not reported to the Internal Revenue Service as wages and
excluding the amount of any fringe benefits reported to the Internal Revenue
Service as wages. A Participant's Compensation for any Plan Year beginning prior
to January 1, 1994, in excess of $200,000 (as adjusted each Plan Year by the
Secretary) shall not be taken into account for any purposes under the Plan, as
required under Section 401(a)(17) of the Code. Effective January 1, 1994,
Compensation for any Plan Year shall not exceed $150,000 (such amount to be
indexed each year by the Secretary). For purposes of the preceding two
sentences, a Participant who has Compensation in excess of $200,000 or $150,000
respectively (in each case as adjusted by the Secretary) may continue to
participate under the terms of the Plan after having received $200,000 or
$150,000 of Compensation during the Plan Year as long as the aggregate amount of
Compensation taken into account under the terms of the Plan for any Plan Year
does not exceed $200,000 or $150,000 (in each case as adjusted by the Secretary)
as applicable.
Notwithstanding any provision in this Plan to the contrary, for purposes
of determining Pre-Tax Contributions and Matching Contributions for a
Participant, Compensation shall include such individual's Compensation beginning
with the first payroll period following satisfaction of the service requirements
of Section 3.1; or the date the Participant elects to authorize Pre-Tax
Contributions to the Plan, if later.
For Plan Years beginning prior to January 1, 1997, in determining the
Compensation of an Eligible Participant who is a five percent owner or Highly
Compensated Eligible Participant in the group consisting of the ten Highly
Compensated Employees paid the greatest Compensation during the Plan Year, (the
"limited individuals"), then with respect to any individuals in such Eligible
Participant's family,
(i) such individual shall not be considered to be a separate Eligible
Participant, and
4
<PAGE>
(ii) any Compensation paid to such individual (and any applicable
contribution or benefit on behalf of such individual) shall be treated as if it
were paid to (or on behalf of) the five percent owner or Highly Compensated
Eligible Participant.
The term "family" shall include only the spouse of the Eligible
Participant and any lineal descendants of the Eligible Participant who have not
attained age 19 before the last day of the Plan Year.
The term "family unit" shall include the limited individuals and family.
The $200,000 limitation and $150,000 limitation, as adjusted above, shall be
allocated among the members of the family unit in proportion to each member's
Compensation for the Plan Year.
For purposes of Sections 4.4 and 4.6, Compensation shall mean any
definition of compensation permissible under Section 414(s) of the Code and
regulations thereunder for such period as is determined by the Committee in its
sole discretion.
Direct Rollover means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
Disability means a medically determinable physical or mental impairment
of a permanent nature which prevents a Participant from performing his customary
employment duties without endangering his health and which would qualify the
Participant for a Disability retirement benefit from the Company's Pension Plan.
Discretionary QNECs means the discretionary qualified nonelective
contributions made by the Employer on a Participant's behalf pursuant to Section
4.1(d).
Discretionary QNEC Account means the account maintained for a
Participant to record his share of Discretionary QNECs under Section 5.2(b)(iii)
and adjustments relating thereto.
Distributee means a Participant or Former Participant. In addition, the
Participant's or Former Participant's Spouse or former Spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are Distributees with regard to the interest of the
Spouse or former Spouse.
5
<PAGE>
Early Retirement Date means separation from service with the Employer
and any Affiliate on or after attainment of age 55 and completion of five years
of credited service, as defined in the Company's Pension Plan.
Effective Date means September 1, 1987, which is the date on which the
provisions of this Plan became effective.
Eligible Employee means an Employee performing services for the
Employer, including any officer or director who shall so qualify.
Notwithstanding the foregoing, in no event shall an individual be an Eligible
Employee if the individual is a bonafide resident of Puerto Rico within the
meaning of the Puerto Rico Internal Revenue Code of 1994, as amended, as
determined by the Employer.
A Leased Employee shall not be deemed to be an Eligible Employee. Any
Employee whose terms of employment are covered by a collective bargaining
agreement that does not provide for participation in the Plan, shall not be
deemed to be an Eligible Employee.
Eligible Participant means as of each Entry Date, for purposes of
Sections 4.5 and 4.6, each Eligible Employee who has met the requirements for
participation in the Plan regardless of whether he has authorized the Employer
to make Pre-Tax Contributions on his behalf to the Plan. For purposes of Section
4.7 and 4.8, Eligible Participant means each Eligible Employee who has met the
requirements for participation in the Plan regardless of whether he has
authorized the Employer to make Pre-Tax Contributions on his behalf to the Plan
and who is otherwise eligible to receive a Matching Contribution in accordance
with Section 4.1(c).
Eligible Retirement Plan means: (i) an individual retirement account
described in Section 408(a) of the Code; (ii) an individual retirement annuity
described in Section 408(b) of the Code; (iii) an annuity plan described in
Section 403(a) of the Code; or (iv) a qualified trust described in Section
401(a) of the Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to the
surviving Spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
Eligible Rollover Distribution means any distribution of all or any
portion of the balance to the credit of the Distributee, but does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the
6
<PAGE>
life (or life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated Beneficiary,
or for a specified period of ten years or more; any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and the
portion of any distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities) and any other distribution that does not qualify as an
Eligible Rollover Distribution as defined in Section 401(a)(31)(C) of the Code.
An Eligible Rollover Distribution shall include an unpaid loan that is
offset against a Participant's total Account balance when he receives a
distribution at Termination of employment in accordance with Section 6.9(h) of
the Plan.
Employee means any individual employed by the Employer as a common law
employee, but does not include any individual that the Employer treats as an
independent contractor even if such individual would be classified as an
employee of the Employer under common law.
Employer means the Company and any Participating Employer, which with
the approval of the Board of Directors, has adopted this Plan. The Participating
Employers are listed on Appendix A.
Entry Date means, effective January 1, 1993, the first day of each
Calendar Quarter. Prior to January 1, 1993, the Entry Date was January 1 and
July 1 of each Plan Year.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulations promulgated thereunder.
Excess Aggregate Contributions means with respect to each Plan Year, the
amount determined for Highly Compensated Eligible Participants under the
procedure set forth in Treas. Reg. ss.1.401(m)-1(e)(2) or any successor thereto.
Excess Contributions means with respect to each Plan Year, the amount
determined for Highly Compensated Eligible Participants under the procedure set
forth in Treas. Reg. ss.1.401(k)-1(f)(2) or any successor thereto.
Family Member means the spouse and lineal ascendants or descendants (and
their spouses) of a Highly Compensated Eligible Participant.
7
<PAGE>
Fiduciary means the Employer, the Board of Directors, the Committee or
the Trustee, but only with respect to the specific responsibilities of each with
respect to Plan and Trust administration.
Former Participant means any former Employee who has credits in his
Accounts as of the close of any Plan Year.
Highly Compensated Eligible Participant means those Eligible
Participants who are Highly Compensated Employees.
Highly Compensated Employee means:
(a) Employees who were five percent owners, as defined in Section
416(i)(1)(iii) of the Code, at any time during the determination year or the
look-back year;
(b)
Employees with compensation greater than $75,000 (as adjusted at the same time
and in the same manner as Section 415(d) of the Code) during the look-back year;
(c) Employees with compensation greater than $50,000 (as adjusted at the
same time and in the same manner as Section 415(d) of the Code) during the
look-back year and who are in the top-paid group for the look-back year;
(d) Employees who are officers during the look-back year and who have
compensation in the look-back year greater than 50% of the dollar limit in
Section 415(b)(1)(A) of the Code;
(e) Employees who are both described in paragraph (b), (c), or (d) above
when these paragraphs are modified to substitute the determination year for the
look-back year and one of the 100 Employees who receive the highest compensation
from the Employer during the determination year.
(1) The top-paid group shall consist of the top 20% of active Employees,
ranked on the basis of compensation received from the Employer during the year
excluding Employees with less than 6 months of service, part-time Employees
(less than 17 1/2 hours per week or less than 6 months a year) Employees who are
not yet age 21, and nonresident aliens without United States source income.
These Employees shall not be excluded for purposes of identifying the particular
Employees in the top-paid group. If the Plan being tested covers only
non-collective bargaining Employees, and collective bargaining Employees
constitute 90 percent
8
<PAGE>
or more of the Employer's Employees, then such collective bargaining Employees
shall be excluded both from the total number of active Employees and the
identification of particular Employees in the top-paid group. The top-paid group
shall not include Employees who perform no service during the year.
(2) For purposes of determining whether an Employee is highly
compensated, the determination year is the Plan Year for which the determination
is being made. The look-back year is the twelve month period preceding the
determination year. The Committee shall have the authority to change the
look-back year to be the calendar year ending with or within the current Plan
Year. If the Committee makes this election, it shall apply to all plans of the
Employer and Affiliates.
(3) Also, for this purpose, the term "Employee" shall include Leased
Employees unless such Employees are covered under a safe-harbor plan of the
leasing organization and not covered under a qualified plan of the employer.
(4) The number of officers shall be limited to the lesser of (a) 50, or
(b) the greater of 3 individuals or 10 percent of all Employees. If the Employer
does not have at least one officer whose compensation is in excess of 150% of
the limit in Section 415(c) of the Code, then the highest paid officer of the
Employer shall be treated as a Highly Compensated Employee.
(5) For purposes of defining Highly Compensated Employees, compensation
means compensation as defined in Section 415(c)(3) of the Code, including
elective contributions. The dollar limits are those for the calendar year in
which the determination or look-back year begins.
(6) The Plan shall take into account employees of all employers
aggregated under Sections 414(b), (c), (m) and (o) of the Code, in determining
who is highly compensated.
Notwithstanding the foregoing, the Employer, by action of the Committee,
may elect for any Plan Year, to define Highly Compensated Employee by
substituting $50,000 for $75,000 in Section 414(q)(1)(B) of the Code and by
disregarding Section 414(q)(1)(C) of the Code.
9
<PAGE>
Hours of Service means:
(a) Performance of Duties. The actual hours for which an Employee is
paid or entitled to be paid for the performance of duties by the Employer;
(b) Nonworking Paid Time. Each hour for which an Employee is paid or
entitled to be paid by the Employer on account of a period of time during which
no duties are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity, disability, layoff,
jury duty, military duty or leave of absence; provided, however, no more than
501 Hours of Service shall be credited to an Employee on account of any single
continuous period during which he performed no duties; and provided further that
no credit shall be given for payments made or due under a plan maintained solely
for the purpose of complying with applicable workmen's or unemployment
compensation or disability insurance laws or for payments which solely reimburse
an Employee for medical or medically related expenses incurred by the Employee;
(c) Back Pay. Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Employer; provided, however,
Hours of Service credited under paragraphs (a), (b) and (c) above shall not be
recredited by operation of this paragraph;
(d) Equivalencies. With respect to full-time Employees only, the
Committee has adopted the following equivalency method for counting Hours of
Service that are permissible under regulations issued by the Department of
Labor: (1) 45 Hours of Service for each week in which an Employee is credited
with at least one Hour of Service. Actual Hours shall be counted for those
Employees who are not employed on a full time basis.
The adoption of any equivalency method for counting Hours of Service
shall be evidenced by a certified resolution of the Committee, which shall be
attached to and made part of the Plan. Such resolution shall indicate the date
from which such equivalency shall be effective; and
(e) Miscellaneous. Unless the Committee directs otherwise, the methods
of determining Hours of Service when payments are made for other than the
performance of duties and of crediting such Hours of Service to Plan Years set
forth in
10
<PAGE>
Regulations sections 2530.200b-2(b) and (c) promulgated by the Secretary of
Labor shall be used hereunder and are incorporated by reference into the Plan.
Participants on military leaves of absence who are not directly or
indirectly compensated or entitled to be compensated by the Employer while on
such leave shall be credited with Hours of Service as required by Section 9 of
the Military Selective Service Act.
Notwithstanding any other provision of this Plan to the contrary, an
Employee shall not be credited with Hours of Service more than once with respect
to the same period of time.
Eligible Employees shall be credited with any Hours of Service required
to be credited to them in accordance with the Family and Medical Leave Act and
The Uniformed Services Employment and Reemployment Rights Act of 1994.
Income means the net gain or loss of the Trust Fund from investments, as
reflected by interest payments, dividends, realized and unrealized gains and
losses on securities, other investment transactions and expenses paid from the
Trust Fund. In determining the Income of the Trust Fund for any period, assets
shall be valued on the basis of fair market value, except for any investment
that the Committee determines shall be valued on the basis of book or contract
value.
Investment Manager means an investment adviser, bank or insurance
company, meeting the requirements of Section 3(38) of ERISA appointed by the
Company to manage the Plan's assets in accordance with the Trust Agreement.
Leased Employee means any person who is not an Employee of the Employer
and who provides services to the Employer if:
(a) such services are provided pursuant to an agreement between the
Employer and any leasing organization;
(b) such person has performed such services for the Employer (or for the
Employer and Affiliates) on a substantially full-time basis for a period of at
least one year; and
11
<PAGE>
(c) (prior to January 1, 1997) such services are of a type historically
performed in the business field of the Employer by Employees. Effective January
1, 1997, such services are performed under primary direction or control of the
Employer.
Notwithstanding the foregoing, a person shall not be deemed to be a
Leased Employee if he is covered by a plan maintained by the leasing
organization and Leased Employees (as determined without regard to this
paragraph) do not comprise more than 20% of the Employer's nonhighly compensated
workforce. Such plan must be a money purchase pension plan providing for
nonintegrated employer contributions of ten percent of compensation and also
providing for immediate participation and vesting.
Limitation Year means the Plan Year.
Matching Contributions means the contributions made by the Employer
pursuant to Section 4.1(c).
Matching Contribution Account means the account maintained for a
Participant to record his share of Matching Contributions under Section
5.2(b)(ii) and adjustments relating thereto.
Normal Retirement Date
means the date on which a Participant attains age 65.
Participant means an Eligible Employee participating in the Plan in
accordance with the provisions of Section 3.2.
Participating Employer means any direct or indirect subsidiary of the
Company or any other entity designated by the Board of Directors, which has
adopted this Plan with the approval of the Company, including but not limited to
Pep Boys -- Manny, Moe & Jack of Puerto Rico, Inc., but solely for purposes of
allowing Eligible Employees (employees who are not bonafide residents of Puerto
Rico) who are Eligible Participants to participate in the Plan.
Plan means the Pep Boys Savings Plan, as amended from time to time.
Plan Year means the 12 consecutive month period commencing January 1 and
ending December 31; provided that the first Plan Year shall be a short Plan Year
from September 1, 1987 through December 31, 1987.
Pre-Tax Contributions means the contributions made by the Employer on a
Participant's behalf pursuant to Section 4.1(a).
12
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Pre-Tax Contribution Account means the account maintained for a
Participant to record his share of Pre-Tax Contributions under Section 5.2(b)(i)
and adjustments relating thereto.
Retirement means Termination of employment with the Employer at or after
Normal Retirement Date.
Rollover Account means the account maintained for a Participant to
record the amount of contributions he has rolled over to the Plan pursuant to
Section 4.9 and adjustments relating thereto.
Spouse (surviving spouse) means the spouse or surviving spouse of the
Participant or Former Participant; provided that a former spouse will be treated
as the spouse or surviving spouse to the extent provided under a qualified
domestic relations order as described in section 414(p) of the Code.
Terminated or Termination means a termination of employment with the
Employer or with an Affiliate for any reason other than a transfer of employment
from the Employer to an Affiliate or from an Affiliate to another Affiliate. A
transfer of employment from the Employer or Affiliate to Pep Boys -- Manny, Moe
& Jack of Puerto Rico, Inc. shall not constitute a Termination of employment.
Trust (or Trust Fund) means the fund known as the "Pep Boys Savings Plan
Trust," maintained by the Trustee in accordance with the terms of the Trust
Agreement, as amended from time to time, which constitutes a part of this Plan.
Trustee or Trustees means any corporation or individuals appointed by
the Board of Directors of the Company to administer the Trust.
Valuation Date means, effective July 1, 1993, the last business day of
each month. Prior to July 1, 1993, Valuation Date means the last business day of
each Calendar Quarter or more frequently as the Trustee shall determine.
Year of Eligibility Service means a 12 consecutive month period
beginning on the date an Eligible Employee's employment commences (the "initial
eligibility computation period"), provided such Eligible Employee is credited
with at least 1,000 Hours of Service. If an Eligible Employee is not credited
with 1,000 Hours of Service in the initial eligibility
13
<PAGE>
computation period, then the eligibility computation period shall be the Plan
Year, beginning with the Plan Year that includes the first anniversary of the
Eligible Employee's initial eligibility computation period.
2.2 Construction. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary.
14
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III: Participation And Service
- --------------------------------------------------------------------------------
3.1 Eligibility to Participate. Any Eligible Employee who was employed
by the Employer on December 31, 1988 shall continue as a Participant as of
January 1, 1989. Each other Eligible Employee shall be eligible to become a
Participant as of the date on which he attains age 21 and is credited with a
Year of Eligibility Service.
3.2 Commencement of Participation. Each Eligible Employee who has
satisfied the requirements of Section 3.1 shall commence participation in the
Plan on the Entry Date coincident with or next following the date he satisfies
such requirement.
Each Eligible Employee who is eligible for participation in the Plan
shall become a Participant by filing the appropriate forms with the Committee,
and shall supply such information as is reasonably necessary for the
administration of this Plan.
3.3 Cessation of Participation. An Eligible Employee shall cease to be a
Participant upon the earliest of: (i) the date on which he retires under the
retirement provisions of the Plan; (ii) the date on which his employment with
the Employer terminates for any reason, including death or Disability; or (iii)
the date on which he ceases to be an Eligible Employee.
3.4 Special Rules for Eligibility Purposes. For purposes of determining
an Eligible Employee's eligibility to participate in the Plan, Hours of Service
shall include an Employee's Hours of Service (i) with an Affiliate after it
became an Affiliate hereunder; (ii) while an Employee, but not an Eligible
Employee, of the Employer or an Affiliate, after it became an Affiliate
hereunder; or (iii) while a Leased Employee of the Employer or an Affiliate.
3.5 Participation and Service upon Reemployment. Upon the reemployment
of any person after the Effective Date who had previously been employed by the
Employer on or after the Effective Date, the following rules shall apply in
determining his participation in the Plan and his Years of Service under Section
3.4.
If the reemployed Employee was not a Participant in the Plan during his
prior period of employment, he must meet the requirements of Section 3.1 for
participation in the Plan as if he were a new Employee. Any Years of Eligibility
Service in which he was credited with
15
<PAGE>
1,000 Hours of Service during his prior period of employment shall be
reinstated upon his reemployment. If the reemployed Employee was a Participant
during his prior period of employment, he shall resume participation in the Plan
as soon as administratively practicable following his reemployment by the
Employer.
3.6 Transfers to Affiliates and Change in Status. A Participant's status
as such under the Plan shall be modified upon and after the date as of which a
Participant (i) is transferred to an Affiliate; (ii) becomes a Leased Employee;
(iii) becomes an Employee whose terms of employment are covered by a collective
bargaining agreement that does not provide for participation in this Plan; or
(iv) ceases for any other reason to be an Eligible Employee while still employed
by the Employer.
The Participant shall share in Employer contributions only to the extent
of his Compensation up to the time such transfer or change in status occurs and
shall not thereafter, unless he later is transferred back to the Employer or
again becomes an Eligible Employee and becomes eligible under the terms of the
Plan to share in such allocations. He, however, shall share in Income
allocations pursuant to Section 5.2(a).
3.7 Transfers From Affiliates and Change in Status. Any Employee who
transfers to the Employer from an Affiliate or who becomes an Eligible Employee
eligible for participation in the Plan, shall be eligible to participate in the
Plan on the later of the first Entry Date coincident with or next following his
satisfaction of the eligibility requirements of Section 3.1 or the first Entry
Date coincident with or next following his change in status.
The Participant shall share in Employer contributions only to the extent
of his Compensation after such transfer or change in status occurs if he becomes
an Eligible Employee and becomes eligible under the terms of the Plan to share
in such allocations.
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- --------------------------------------------------------------------------------
IV: Employer Contributions
- --------------------------------------------------------------------------------
4.1 Employer Contributions.
(a) Pre-Tax Contributions.
(i) Subject to the limitations of Sections 4.4 and 5.3, each Participant
shall have the option to authorize the Employer, in writing and in accordance
with procedures established by the Committee, to contribute to the Plan for a
Plan Year on his behalf, an amount equal to any whole percentage of his
Compensation from one percent (1%) up to twelve percent (12%) (as determined
without regard to this Section 4.1(a)) for such Plan Year. Such authorization
shall be in the form of an election by the Participant to have his Compensation
reduced by payroll withholding. Payroll deduction shall commence as soon as
practicable following the Entry Date on which an Eligible Employee becomes a
Participant or elects to make Pre-Tax Contributions to the Plan. Such withheld
amounts are to be transmitted by the Employer to the Trustee as of the earliest
date on which such amounts can reasonably be segregated from the Employer's
general assets. Effective February 3, 1997, such withheld amounts are to be
transmitted by the Employer to the Trustee no later than the date required by
DOL Reg. Section 2510.3-102(b). The amount of such contributions, together with
contributions under Sections 4.1(c) and (d), shall not exceed the maximum amount
allowable as a deduction under the Code for the Plan Year.
(ii) Notwithstanding the foregoing, the Participant shall be prohibited
from authorizing any Pre-Tax Contributions to be made on his behalf under this
Plan and elective contributions under any other plan, in excess of the
applicable limit under Section 402(g) of the Code in effect for the Plan Year to
which such Pre-Tax Contributions relate. In the event a Participant has made
excess deferrals under the Plan (or, if not, has determined that excess
deferrals will be considered to exist under this Plan), then not later than the
first day of April following the close of the Participant's taxable year, the
Participant may notify the Plan of the amount of the excess deferrals hereunder.
The Participant shall be deemed to have notified the Plan of excess deferrals to
the extent he has excess deferrals for the taxable year calculated by
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taking into account only elective deferrals under the Plan and other plans of
the Employer or Affiliate. The Employer may notify the Plan on behalf of the
Participant under these circumstances.
Not later than the first April 15 following the close of the taxable
year, the Plan shall distribute to the Participant the amount designated above,
including any Income allocated thereto. The Income attributable to a
Participant's excess deferral pursuant to this Section 4.1(a)(ii) for the Plan
Year during which such excess deferral arose shall be determined in accordance
with Treas. Reg. ss.1.402(g)-1(e)(5)(ii). Unless provided for by the Committee,
any Income attributable to a Participant's excess deferrals for the period
between the end of the Plan Year and the date of distribution shall be
disregarded. Excess deferrals to be distributed for a Plan Year shall be reduced
by Excess Contributions previously distributed for the Plan Year beginning in
such taxable year as set forth in Section 4.5.
A Participant who has excess deferrals for a taxable year may receive a
corrective distribution of excess deferrals during the same year. This
corrective distribution shall be made only if:
(A) The Participant designates the distribution as an excess deferral.
The Participant shall be deemed to have designated the distribution to the
extent the Participant has excess deferrals for the taxable year calculated by
taking into account only elective deferrals under the Plan and other plans of
the Employer and Affiliate. The Employer may make the designation on behalf of
the individual under these circumstances.
(B) The correcting distribution is made after the date on which the Plan
received the excess deferral.
(C) The Plan designates the distribution as a distribution of excess
deferrals.
The term "excess deferrals" means the excess of an individual's elective
deferrals for any taxable year, as defined in Treas. Reg. ss.1.402(g)-1(b), over
the applicable limit under Section 402(g)(1) for the taxable year.
Notwithstanding the foregoing, the Committee may further limit a
Participant's right to make Pre-Tax Contributions to the Plan if in the sole
judgment and discretion of the
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<PAGE>
Committee, such limits are necessary to ensure the Plan's compliance with the
requirements of Sections 401(k) and (m) of the Code.
(b) Change in Amount of Pre-Tax Contributions. Effective as of any Entry
Date, upon written notice to the Committee to be effective as of the full
payroll period following the processing of such notice, each Participant shall
have the option to change the amount of Pre-Tax Contributions he has authorized
the Employer to contribute to the Plan on his behalf pursuant to Section 4.1(a)
in accordance with rules established therefore by the Committee. Notwithstanding
the foregoing, a Participant may authorize the Employer to cease making Pre-Tax
Contributions on his behalf at any time, effective as of the next full payroll
period following the processing of written notice to the Committee. A
Participant who has ceased making Pre-Tax Contributions may again authorize
Pre-Tax Contributions to be made to the Plan on his behalf as of any Entry Date
upon written notice to the Committee, to be effective as of the next full
payroll following the processing of such notice. Prior to January 1, 1993, all
changes to Pre-Tax Contribution elections (other than a voluntary suspension of
Pre-Tax Contributions) were effective as of any January 1 or July 1.
(c) Matching Contributions. Subject to the limitations of Sections 4.5
and 5.4, the Employer shall contribute for each Plan Year, an amount, if any, to
be determined by the Board of Directors. Unless and until changed by the Board
of Directors, such amount shall be as follows:
The lesser of (i) 50% of the Participant's Pre-Tax Contributions for
each Calendar Quarter in which he contributed; and (ii) three percent (3%) of
the Participant's Compensation for the Calendar Quarter. In order to share in
the allocation of the Employer's Matching Contribution, a Participant must be
employed by the Employer on the last day of the Plan Year or have Terminated
employment during the Plan Year due to Normal Retirement, Early Retirement or
Disability prior to the last day of the Plan Year. A Participant who becomes
ineligible to participate in the Plan because the individual transfers
employment to an Affiliate or becomes a bonafide resident of Puerto Rico shall
be eligible for an allocation of the Employer's Matching Contribution,
notwithstanding the preceding sentence, provided that the individual is employed
by the Employer or an Affiliate on the last day of the Plan Year. The Matching
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<PAGE>
Contribution shall be made once each Plan Year, but based on the Pre-Tax
Contributions that are made in each Calendar Quarter by those Participants
eligible to share in the allocation of the Matching Contribution.
Effective January 1, 1998, unless and until modified by the Board of
Directors, for each Plan Year the Employer shall make an additional Matching
Contribution to the Plan on behalf of Participants who (i) are not Highly
Compensated Employees, (ii) are employed as active hourly Employees of the
Employer at the Los Angeles, Phoenix and Dallas distribution centers; (iii) are
actively employed by the Employer on December 31 of the Plan Year to which such
contribution relates (or who are on a leave under the Family and Medical Leave
Act as of such date); (iv) were ineligible to receive an increase in their
hourly rate of pay for the 1996 calendar year (determined by comparing the
hourly rate of pay in effect on December 31 of the applicable Plan Year to the
hourly rate in effect on January 1 of the applicable Plan Year); and (v) are
making Pre-Tax Contributions to the Plan as of December 31 of the applicable
Plan Year to which the additional contribution relates.
The amount of the additional Matching Contribution in shares allocated
to each eligible Participant's Matching Contribution Account, shall be equal to
$500.00 divided by the average of the mean between the highest and lowest quoted
selling prices of the Company's Common Stock on the New York Stock Exchange for
each day of the last ten (10) trading days of December of the applicable Plan
Year, rounded to the nearest 1/1000th of a share.
The amount of such contributions shall not exceed the maximum amount
allowable as a deduction under the Code for such Plan Year and shall be subject
to the limitations of Section 5.4.
(d) Discretionary QNECs. Subject to the limitations of Sections 4.4 and
5.3, the Employer shall contribute for each Plan Year an amount, if any, as
determined by the Board of Directors on behalf of some or all Participants who
are not Highly Compensated Eligible Participants. The amount of such
contribution, together with contributions under Sections 4.1(a) and (c), shall
not exceed the maximum amount allowable as a deduction under
20
<PAGE>
the Code for such Plan Year. It is intended that this contribution shall
constitute a qualified nonelective contribution within the meaning of Treas.
Reg. ss.1.401(k)-1(g)(13)(ii) or any successor thereto.
Effective for the Plan Year beginning January 1, 1997, the Employer
shall make an additional contribution to the Plan on behalf of certain
Participants who (i) are not Highly Compensated Employees, (ii) are employed as
active hourly Employees of the Employer at the Los Angeles, Phoenix and Dallas
distribution centers and whose wages are frozen; and (iii) are actively employed
by the Employer on December 31, 1997 (or who are on a leave under the Family and
Medical Leave Act as of such date). The Participants eligible for this
additional contribution are set forth in Appendix B to the Plan.
The amount of the additional contribution in shares shall be equal to
$500.00 divided by the average of the mean between the highest and lowest quoted
selling prices of the Company's Common Stock on the New York Stock Exchange for
each day of the last ten (10) trading days of December of the applicable Plan
Year, rounded to the nearest 1/1000th of a share. The additional contribution
shall be allocated to each eligible Participant's Matching Contribution Account.
4.2 Minimum Employer Contributions. Effective January 1, 1998, for each
Plan Year, the Employer shall make contributions to the Plan in the form of
Employer contributions (within the meaning of Section 404 of the Code), in cash
or company stock, at least equal to a specified dollar amount, on behalf of
those individuals who are entitled to an allocation under Section 5.3. Such
amount shall be determined by the Chief Financial Officer of the Company, by
appropriate resolution, on or before the last day of the Employer's taxable year
that ends within such Plan Year.
The Minimum Employer Contribution for a Plan Year shall be paid by the
Employer in cash or company stock in one or more installments without interest.
The Employer shall pay the Minimum Employer Contribution at any time during the
Plan Year, and for purposes of deducting such contribution, shall make the
contribution, not later than the time prescribed by the Code for filing the
Company's income tax return
21
<PAGE>
including extensions, for its taxable year that ends within such Plan Year.
Notwithstanding any provision of the Plan to the contrary, the Minimum Employer
Contribution made to the Plan by the Employer (i) shall not revert to, or be
returned to, the Employer and (ii) can be made whether or not the Employer has
current or accumulated profits.
4.3 Time and Manner of Contribution. All Employer contributions shall be
paid directly to the Trustee, and except as provided in Section 4.1(a), a
contribution for any Plan Year shall be made not later than the date prescribed
by law for filing the Employer's federal income tax return, including
extensions, for such Plan Year.
4.4 Conditions on Employer Contributions. To the extent permitted or
required by ERISA and the Code, contributions under this Plan are subject to the
following conditions:
(a) If the Employer makes a contribution, or any part thereof, by good
faith mistake of fact, such contribution or part thereof, or its then current
value if less, shall be returned to the Employer within one year after such
contribution is made;
(b) Contributions to the Plan are specifically conditioned upon their
deductibility under the Code; to the extent a deduction is disallowed for any
such contribution, such amount, or its then current value if less, shall be
returned to the Employer within one year after the disallowance of the
deduction; and
(c) The amount of any Employer contribution shall be subject to the
limitations prescribed in Section 5.4.
4.5 Limitations on Pre-Tax Contributions. The amount of Pre-Tax
Contributions made in each Plan Year on behalf of all Eligible Participants
under the Plan shall comply with either (i) or (ii) and (iii), if applicable,
below.
(i) The average deferral percentage for the Highly Compensated Eligible
Participants shall not exceed the average deferral percentage for all other
Eligible Participants multiplied by 125%; or
(ii) The average deferral percentage for Highly Compensated Eligible
Participants shall not be greater than the average deferral percentage of all
other Eligible
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<PAGE>
Participants multiplied by 200% and the excess of the average deferral
percentage for Highly Compensated Eligible Participants over all other Eligible
Participants shall not exceed two percentage points.
Compliance with (i) and (ii) above, shall be determined in accordance
with the rules set forth in Section 401(k)(3) of the Code, Treas. Reg.
ss.1.401(k)-1(b), or any successors thereto.
(iii) Notwithstanding the foregoing, if this Section 4.5 and Section 4.7
are both satisfied by use of the limitation set forth in subsection (ii) above,
the average deferral percentages for the Highly Compensated Eligible
Participants and the average contribution percentages for the Highly Compensated
Eligible Participants, as defined in Section 4.7, also must satisfy the
aggregate limit test set forth in Treas. Reg. ss.1.401(m)-2(b)(3).
If the Committee determines, in its sole discretion, with respect to any
Plan Year, that the Plan will (or may) fail (i), (ii) or (iii) above, the
Committee shall take any action, that it deems appropriate, including imposing
limitations on Pre-Tax Contributions made by Highly Compensated Eligible
Participants, for the Plan to satisfy (i), (ii) or (iii) above.
If the amount of Pre-Tax Contributions authorized by Highly Compensated
Eligible Participants in a Plan Year would not comply with either (i), (ii) or
(iii) above, then by the last day of the following Plan Year, the Excess
Contributions for such Plan Year (including any Income attributable to such
contributions as determined by the Committee) shall be distributed to Highly
Compensated Eligible Participants on the basis of the respective portions of
such Excess Contributions attributable to each such Highly Compensated Eligible
Participant in accordance with Treas. Reg. ss.1.401(k)-1(f)(4).
If Excess Contributions are distributed to Highly Compensated Eligible
Participants, the amount of excess of each Highly Compensated Eligible
Participant is the amount by which his Pre-Tax Contributions must be reduced for
the Participant's deferral percentage to equal the highest permitted actual
deferral percentage under the Plan. To calculate the highest permitted actual
deferral percentage under the Plan, the actual deferral percentage of the Highly
Compensated Eligible Participant with the highest deferral percentage is reduced
by the amount required to cause the Participant's actual deferral percentage to
equal the percentage
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<PAGE>
of the Highly Compensated Eligible Participant with the next highest actual
deferral percentage. If a lesser reduction would enable the arrangement to
satisfy the actual deferral percentage test, only such lesser reduction need be
made. This process shall be repeated until the requirements set forth above are
met. The highest deferral percentage remaining under the Plan after leveling is
the highest permitted actual deferral percentage. In no event shall the amount
of Excess Contributions to be distributed for a Plan Year with respect to any
Highly Compensated Eligible Participant exceed the amount of Pre-Tax
Contributions made on behalf of the Highly Compensated Eligible Participant for
the Plan Year.
The Compensation and Pre-Tax Contributions of Highly Compensated
Eligible Participants who are either five percent owners or among the ten most
Highly Compensated Employees includes the Compensation and Pre-Tax Contributions
of their Family Members. When family aggregation shall be required, the family
group shall be treated as one Highly Compensated Eligible Participant and the
actual contribution percentage for the group shall be determined by combining
the Pre-Tax Contributions, amounts treated as Pre-Tax Contributions and
Compensation of all the eligible Family Members. If an Employee is required to
be aggregated as a Family Member of more than one family group in the Plan, then
all Participants who are Family Members of those family groups that include that
Employee, are aggregated as one family group.
The amount of Excess Contributions for a Highly Compensated Eligible
Participant shall be determined by reducing the contribution percentage of the
Highly Compensated Eligible Participants who have the highest percentages to the
maximum acceptable level. The amount of Excess Contributions to be reduced shall
be reduced by excess deferrals, as defined in Section 4.1(a)(ii), previously
distributed for the taxable year ending in the same Plan Year.
If the Highly Compensated Eligible Participant's deferral percentage was
required to be determined by combining the Compensation and Pre-Tax
Contributions of all Family Members who are Participants, the Highly Compensated
Eligible Participant's percentage shall be reduced as set forth above. Excess
Contributions shall be allocated among the eligible Family
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<PAGE>
Members in proportion to the Pre-Tax Contributions of each such Family Member
that were combined above.
Alternatively, the Committee may take such other actions as may be
permissible under the Code to ensure the Plan's compliance with the requirements
of Section 401(k) of the Code, including, without limitation the allocation of
the Employer's Discretionary QNEC to some or all Eligible Participants who are
not Highly Compensated Eligible Participants in accordance with Section 4.1(d).
4.6 Income Attributable to Excess Contributions. The Income attributable
to a Participant's Excess Contributions pursuant to Section 4.5 for the Plan
Year during which such Excess Contributions arose shall be determined in
accordance with Treas. Reg. ss.1.401(k)-1(f)(4)(ii).
Unless provided for by the Committee, any gain or loss on a
Participant's Excess Contributions for the period between the end of the Plan
Year and the date of distribution shall be disregarded.
4.7 Limitations on Matching Contributions. The amount of Matching
Contributions made in each Plan Year on behalf of all Eligible Participants
under the Plan shall comply with either (i) or (ii) and (iii), if applicable,
below.
(i) The average contribution percentage for the Highly Compensated
Eligible Participants shall not exceed the average contribution percentage for
all other Eligible Participants multiplied by 125%; or
(ii) The average contribution percentage for Highly Compensated Eligible
Participants shall not be greater than the average contribution percentage of
all other Eligible Participants multiplied by 200% and the excess of the average
contribution percentage for Highly Compensated Eligible Participants over all
other Eligible Participants shall not exceed two percentage points.
Compliance with (i) and (ii) above, shall be determined in accordance
with the rules set forth in Section 401(m)(2) of the Code and Treas. Reg.
ss.1.401(m)-1(b), or any successors thereto.
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(iii) Notwithstanding the foregoing, if this Section 4.7 and Section 4.5
are both satisfied by use of the limitation set forth in subsection (ii) above,
the average contribution percentages for the Highly Compensated Eligible
Participants and the average deferral percentages for the Highly Compensated
Eligible Participants, as defined in Section 4.5, also must satisfy the
aggregate limit test set forth in Treas. Reg. section 1.401(m)-2(b)(3).
If the Committee determines, in its sole discretion, with respect to any
Plan Year, that the Plan will (or may) fail (i), (ii) or (iii) above, the
Committee shall take any action that it deems appropriate, for the Plan to
satisfy (i), (ii) or (iii) above.
If the amount of Matching Contributions made on behalf of Highly
Compensated Eligible Participants in a Plan Year would not comply with either
(i), (ii) or (iii) above, then by the last day of the following Plan Year, the
Committee may determine that the Excess Aggregate Contributions for such Plan
Year (including any Income attributable to such contributions, as determined by
the Committee) shall be distributed to Highly Compensated Eligible Participants
or to the extent required or permissible, forfeited on the basis of the
respective portions of such Excess Aggregate Contributions attributable to each
such Highly Compensated Eligible Participant in accordance with Treas. Reg.
section 1.401(m)-1(e).
If Excess Aggregate Contributions are distributed or to the extent
required or permissible, forfeited for Highly Compensated Eligible Participants,
the amount of excess of each Highly Compensated Eligible Participant is the
amount by which his Matching Contributions must be reduced for the Participant's
contribution percentage to equal the highest permitted actual contribution
percentage under the Plan. To calculate the highest permitted actual
contribution percentage under the Plan, the actual contribution percentage of
the Highly Compensated Eligible Participant with the highest contribution
percentage is reduced by the amount required to cause the Participant's actual
contribution percentage to equal the percentage of the Highly Compensated
Eligible Participant with the next highest actual contribution percentage. If a
lesser reduction would enable the arrangement to satisfy the actual contribution
percentage test, only such lesser reduction need be made. This process shall be
repeated until the requirements set forth above are met. The highest
contribution percentage remaining under the Plan after leveling is the highest
permitted actual contribution percentage. In no event shall the
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<PAGE>
amount of Excess Aggregate Contributions to be distributed or to the
extent required or permissible, forfeited for a Plan Year with respect to any
Highly Compensated Eligible Participant exceed the amount of Matching
Contributions made on behalf of the Highly Compensated Eligible Participant for
the Plan Year.
The Compensation and Matching Contributions of Highly Compensated
Eligible Participants who are either five percent owners or among the ten most
Highly Compensated Employees includes the Compensation and Matching
Contributions of their Family Members. When family aggregation shall be
required, the family group shall be treated as one Highly Compensated Eligible
Participant and the actual contribution percentage for the group shall be
determined by combining the Matching Contributions, amounts treated as Matching
Contributions and Compensation of all the eligible Family Members. If an
Employee is required to be aggregated as a Family Member of more than one family
group in the Plan, then all Participants who are Family Members of those family
groups that include that Employee, are aggregated as one family group.
The amount of Excess Aggregate Contributions for a Highly Compensated
Eligible Participant shall be determined by reducing the contribution percentage
of the Highly Compensated Eligible Participants who have the highest percentages
to the maximum acceptable level.
If the Highly Compensated Eligible Participant's contribution percentage
was required to be determined by combining the Compensation and Matching
Contributions of all Family Members who are Participants, the Highly Compensated
Eligible Participant's percentage shall be reduced as set forth above. Excess
Aggregate Contributions shall be allocated among the eligible Family Members in
proportion to the Matching Contributions of each such Family Member that were
combined above.
Alternatively, the Committee may take such other actions as may be
permissible under the Code to ensure the Plan's compliance with the requirements
of Section 401(m) of the Code, including, without limitation the allocation of
the Employer's Discretionary QNEC to some or all Eligible Participants who are
not Highly Compensated Eligible Participants in accordance with Section 4.1(d).
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4.8 Income Attributable to Excess Aggregate Contributions. The Income
attributable to a Participant's Excess Aggregate Contributions pursuant to
Section 4.7 for the Plan Year during which such Excess Aggregate Contributions
arose shall be determined in accordance with Treas. Reg. section
1.401(m)-1(e)(3)(ii). Unless provided for by the Committee, any gain or loss on
a Participant's Excess Aggregate Contributions for the period between the end of
the Plan Year and the date of distribution shall be disregarded.
4.9 Requirements for Qualified Non-Elective Contributions and Qualified
Matching Contributions. Any contributions that are designated as qualified
non-elective contributions or as qualified matching contributions shall meet the
requirements of Treas. Reg. Sections 1.401(k)-1(b)(5) and 1.401(m)-1(b)(5). In
addition, qualified non-elective contributions and qualified matching
contributions shall be fully vested at all times. Such contributions shall be
distributed from the Plan only in accordance with the events enumerated in the
Plan provided however, that in no event shall such amounts be available for
hardship withdrawal.
4.10 Rollovers. A Participant or an Eligible Employee, with the prior
discretionary approval of the Committee, may transfer, or have transferred to
the Trust any property which has been distributed to him whether such amount is
(i) transferred directly from the Trust of another plan that is qualified under
Section 401(a) of the Code, as an eligible rollover distribution to this Plan;
(ii) transferred by the Participant after his receipt of such amount from a plan
qualified under Section 401(a) of the Code; or (iii) transferred from a
"conduit" Individual Retirement Account established by the Participant upon his
receipt of such amount from a plan qualified under Section 401(a) of the Code;
provided, however, that such amount qualifies as a rollover amount as defined by
the Code at the time of the transfer.
The amount of cash or the fair market value of any other property
transferred to the Trust pursuant to this Section 4.10 shall be credited to the
Participant's Rollover Account as of the Valuation Date next following such
transfer to the Trust and shall be nonforfeitable at all times.
4.11 Rollovers from the Plan. Notwithstanding any provision of the Plan
to the contrary, effective January 1, 1993, a Distributee may elect, at the time
and in the manner
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<PAGE>
prescribed by the Committee, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan, specified by the
Distributee, in a Direct Rollover. Each Eligible Rollover Distribution shall be
made payable to the Eligible Retirement Plan and delivered to the Distributee or
paid directly to the Eligible Retirement Plan.
4.12 In Writing Requirement. Unless otherwise required by law, a
requirement that a transaction under the Plan be "in writing" may, at the
discretion of the Committee, be effected through an interactive telephone system
or by other types of electronic communications.
4.13 Military Service. Notwithstanding any provision of this Plan to the
contrary, effective December 12, 1994, contributions, benefits and service
credit with respect to qualified military service shall be provided in
accordance with Section 414(u) of the Code.
29
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- --------------------------------------------------------------------------------
V: Allocations To Participants' Accounts
- --------------------------------------------------------------------------------
5.1 Individual Accounts. The Committee shall create and maintain
adequate records to disclose the interest in the Trust of each Participant,
Former Participant and Beneficiary. Such records shall be in the form of
individual Accounts and credits, and charges shall be made to such Accounts in
the manner herein described. While such Accounts shall distinguish between
Matching Contributions and adjustments thereto and Pre-Tax Contributions and
adjustments thereto and Discretionary QNECs and adjustments thereto, there shall
be one Account maintained for each Participant reflecting the Matching
Contributions, Pre-Tax Contributions and Discretionary QNECs made to the Plan by
or on behalf of each Participant. There also shall be maintained one Account for
each Participant reflecting his Rollover Account, if any. The maintenance of
individual Accounts is for accounting purposes only, and a segregation of the
assets of the Trust Fund with respect to each Account shall not be required.
5.2 Account Adjustments. The Accounts of Participants, Former
Participants and Beneficiaries shall be adjusted in accordance with the
following:
(a) Income. The Income of the Trust Fund shall be allocated as of each
Valuation Date to the Accounts of Participants, Former Participants and
Beneficiaries who have unpaid balances in their Accounts on a Valuation Date in
proportion to the balances in such Accounts immediately after the next preceding
Valuation Date, but after (i) first reducing each such Account by 100% of any
distributions, loans or withdrawals from such Accounts during the interim
period; and (ii) increased by fifty percent (50%) of Pre-Tax Contributions,
rollover contributions and loan repayments that are made after the last
Valuation Date and during the month that includes the subsequent Valuation Date.
For purposes of this subsection, to the extent that the Participant has
directed the management of his Account(s) pursuant to Section 7.2, or taken a
loan from his Account(s) pursuant to Section 6.9, then, to such extent, the
Income with respect to his Accounts shall be separately determined by reference
to such investments. Otherwise, all valuations hereunder shall be based on the
fair market value of the assets in the Trust Fund on the Valuation Date.
30
<PAGE>
(b) Employer Contributions. The Employer's contribution for each Plan
Year shall be allocated among the Pre-Tax Contribution Accounts, Matching
Contribution Accounts and Discretionary QNEC Accounts of those eligible
Participants as set forth below:
(i) Pre-Tax Contributions. The Employer's Pre-Tax Contribution for the
Plan Year made pursuant to Section 4.1(a) shall be credited directly to the
Pre-Tax Contribution Account of each Participant who authorized a Pre-Tax
Contribution.
(ii) Matching Contributions. The Employer's Matching Contribution for
the Plan Year made pursuant to Section 4.1(c) shall be allocated to the Matching
Contribution Accounts of those Participants described in Section 4.1(c).
(iii) Discretionary QNECs. The Employer's Discretionary QNEC for the
Plan Year made pursuant to Section 4.1(d), shall be credited directly to the
Discretionary QNEC Accounts of some or all Eligible Participants who are not
Highly Compensated Eligible Participants as of the last day of the Plan Year and
who are designated to receive an allocation of such contribution.
(c) Deemed Date of Allocation. All credits or deductions made under this
Article to Participants' Accounts shall be deemed to have been made no later
than the last day of the Plan Year though actually determined thereafter.
5.3 Allocation of Minimum Employer Contributions. The Minimum Employer
Contribution for the Plan Year shall be allocated as follows:
(a) First, the Minimum Employer Contribution for the Plan Year shall be
allocated during the Plan Year to each individual who is an Eligible Participant
on the first day of the Plan Year as Pre-Tax Contributions pursuant to Section
4.1(a) and as Matching Contributions pursuant to Section 4.1(c). These
allocations shall be made to each such Participant's Pre-Tax Contribution
Account and Matching Contribution Account, respectively.
(b) Second, the balance of the Minimum Employer Contribution remaining
after the allocation in Section 5.3(a) shall be allocated to the Matching
Contribution Account of each individual who is not a Highly Compensated Employee
(as defined in Section 2.1 of the Plan) and who is an Eligible Participant on
the
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first day of the Plan Year and is employed on the last day of the Plan Year, in
the ratio that such Eligible Participant's Pre-Tax Contributions during the Plan
Year bears to the Pre-Tax Contributions of all such Eligible Participants during
the Plan Year.
(c) Third, notwithstanding Section 5.4 of the Plan, if the total
contributions allocated to a Participant's Accounts including the Minimum
Employer Contribution exceeds the Participant's maximum Annual Addition limit
for any Plan Year, then such excess shall be held in a suspense account. Such
amounts shall be used to reduce Employer contributions in the next, and
succeeding, Plan Years.
(d) Fourth, the balance of the Minimum Employer Contribution remaining
after the allocation under Section 5.3(a), (b) and (c) shall be allocated as a
nonelective contribution to each individual who is not a Highly Compensated
Employee (as defined in Section 2.1 of the Plan) and who is an Eligible
Participant on the first day of the Plan Year, in the ratio that such Eligible
Participant's Compensation for the Plan Year bears to the Compensation for the
Plan Year of all such Eligible Participants. Contributions made pursuant to this
subsection 5.3(d) shall be allocated to the Eligible Participant's Matching
Contribution Account and are distributable only in accordance with the
distribution provisions of the Plan applicable to Matching Contributions.
Contributions made pursuant to this subsection shall be vested at all times.
Such contribution shall be invested in the Trust Fund in the manner designated
by the Eligible Participant. Notwithstanding the definition of Participant in
Section 2.1 of the Plan, an individual who receives an allocation of a
contribution pursuant to this subsection shall be treated as a Participant for
all purposes of the Plan with respect to such contribution.
(e) Each installment of the Minimum Employer Contribution shall be held
in a contribution suspense account unless, or until, allocated on or before the
end of the Plan Year in accordance with this Section 5.3. Such suspense account
shall not participate in the allocation of investment gains, losses, income and
deductions of the Trust Fund as a whole, but shall be invested separately and
all gains, losses, income and
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deductions attributable to such investment shall be applied, to the extent the
Plan pays Plan expenses, to reduce Plan expenses, and thereafter, to reduce
Employer contributions.
(f) The Minimum Employer Contribution allocated to the Matching
Contribution Account of an Eligible Participant pursuant to Section 5.3(b) shall
be treated in the same manner as Matching Contributions for all purposes of the
Plan.
(g) Notwithstanding any of the foregoing provisions to the contrary, any
allocation of Pre-Tax Contributions shall be made under either Section 5.2(b)(i)
or this Section 5.3, but not both Sections. Similarly, any allocation of a
Matching Contribution shall be made under either Section 5.2(b)(ii) or this
Section 5.3, as appropriate, but not both Sections.
5.4 Maximum Annual Additions. The maximum Annual Additions that may be
contributed or allocated to a Participant's Accounts under the Plan for any
Limitation Year shall not exceed the lesser of:
(i) the defined contribution dollar limitation, or
(ii) 25 percent of the Participant's compensation, within the meaning of
Section 415(c)(3) of the Code, for the Limitation Year.
The compensation limitation referred to shall not apply to:
(i) Any contribution for medical benefits (within the meaning of Section
419A(f)(2) of the Code) to be paid to the Participant after separation from
service which is otherwise treated as Annual Additions, or
(ii) Any amount otherwise treated as Annual Additions under Section
415(l)(1) of the Code.
The defined contribution dollar limitation shall mean $30,000 or, if
greater, one-fourth of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Code as in effect for the Limitation Year.
If the total Annual Additions on behalf of a Participant for a
Limitation Year would exceed the limitations described herein as a result of a
reasonable error in determining the amount of Pre-Tax Contributions that a
Participant may make to comply with this Section 5.4, or as a result of a
reasonable error in estimating a Participant's Compensation for purposes of this
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Section, such excess Pre-Tax Contributions may be distributed to the Participant
to the extent that such distribution would reduce the excess Annual Additions as
permitted under Section 415 of the Code. If Pre-Tax Contributions are
distributed, then such amounts shall be disregarded under Section 4.5, 4.6, 4.7
and 4.8 and for purposes of the limitations of Section 402(g) of the Code.
Effective for Limitation Years beginning after December 31, 1995, any gains
attributable to such excess Pre-Tax Contributions that are so distributed, that
are not also distributed, shall be considered as an Employer contribution for
the Limitation Year in which the excess Pre-Tax Contributions were made.
If the total Annual Additions on behalf of a Participant for a
Limitation Year would exceed the limitations described herein as a result of the
allocation of forfeitures, a reasonable error in estimating a Participant's
annual compensation, the excess amounts in the Participant's Accounts shall be
allocated and reallocated to other Participants in the Plan. However, if the
allocation or reallocation of the excess amounts pursuant to the provisions of
the Plan causes the limitations of Section 415 to be exceeded with respect to a
Participant for the Limitation Year, then these amounts shall be held
unallocated in a suspense account. If a suspense account is in existence at any
time during a particular Limitation Year, other than the Limitation Year
described in the preceding sentence, all amounts in the suspense account must be
allocated and reallocated to Participants' Accounts (subject to the limitations
of Section 415) before any Employer contributions which would constitute Annual
Additions may be made to the Plan for that Limitation Year.
5.5 Defined Contribution and Defined Benefit Plans. Notwithstanding any
other provision of the Plan to the contrary, for Limitation Years beginning
prior to January 1, 2000, the total Annual Additions on behalf of a Participant
for any Limitation Year shall not cause the sum of that Participant's defined
contribution plan fraction and defined benefit plan fraction (as those terms are
defined in Section 415 of the Code and regulations thereunder) to exceed 1.0. If
the sum of such fractions would exceed 1.0 for any Limitation Year, the excess
amount will be eliminated first by making appropriate adjustments under any
defined benefit plan maintained by the Employer and then under this Plan.
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5.6 No Rights Created by Allocation. Any allocation made and credited to
the Account of a Participant, Former Participant or Beneficiary under this
Article shall not cause such Participant, Former Participant or Beneficiary to
have any right, title or interest in or to any assets of the Trust Fund except
at the time or times, and under the terms and conditions, expressly provided in
this Plan.
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- --------------------------------------------------------------------------------
VI: Payment Of Benefits
- --------------------------------------------------------------------------------
6.1 Normal Retirement or Termination. If a Participant's employment is
Terminated by reason of his Normal Retirement or Termination, then such
Participant shall be entitled to receive the entire amount credited to his
Accounts in the manner and at the time provided in Sections 6.4 and 6.5.
6.2 Death. In the event that the Termination of employment of a
Participant is caused by his death, or in the event that a Participant or Former
Participant who is entitled to receive distributions pursuant to Section 6.1
dies prior to receiving the full amount of such distributions, the entire amount
credited to his Accounts shall be paid to his Beneficiary in the manner and at
the time provided in Sections 6.4 and 6.5.
6.3 Vesting. A Participant shall be fully vested at all times in his
Accounts.
6.4 Time of Payment of Benefits.
(a) A distribution to a Participant of his Accounts on account of
Retirement pursuant to Section 6.1 on or after Normal Retirement Date shall be
made as soon as practicable following the Valuation Date coincident with or next
following such Retirement after receipt by the Committee of the applicable
forms.
(b) Distribution of a Participant's or Former Participant's Accounts,
payable on account of the death of a Participant or Former Participant pursuant
to Section 6.2, shall be distributed as follows:
(1) In the case of a Participant's death prior to commencement of his
benefits in a single lump sum payment, as soon as practicable following such
death, but no later than December 31 of the year in which occurs the fifth
anniversary of the Participant's or Former Participant's death, (but no earlier
than the Valuation Date coincident with or next following his date of death).
(2) Notwithstanding subsection (1) above, in the case of a Participant's
or Former Participant's death prior to commencement of his benefits, if such
Participant's Beneficiary is his Spouse, then such distribution shall not be
required to begin prior
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to the date on which the Participant or Former Participant would have attained
age 70 1/2, had he lived. At such time, distribution must be made in the form
provided for in Section 6.5. Prior to the date on which the Participant or
Former Participant would have attained age 70 1/2, the Spouse may elect to
receive the Participant's or Former Participant's Accounts, upon written notice
to the Committee in a lump sum.
(3) Any amount payable to a child pursuant to the death of a Participant
or Former Participant shall be treated as if it were payable to the
Participant's or Former Participant's Spouse if such amount would become payable
to the Spouse upon such child reaching majority (or other designated event
permitted by regulations).
(c) Subject to subsection (e) of this Section 6.4, a distribution to a
Participant of his Accounts, payable on account of other Termination of
employment pursuant to Section 6.1, shall be made as soon as practicable
following the Valuation Date coincident with or next following such Termination
after receipt by the Committee of the applicable forms. In the case of a
distribution of a Participant's Accounts that does not exceed $3,500, if the
Participant fails to complete all forms or applications needed to properly
process the distribution pursuant to rules set by the Committee, then the
distribution shall be automatically made as soon as administratively feasible
after the next Valuation Date that is coincident with or next follows the date
that is 90 days following the event giving rise to the distribution. If the
Participant's Accounts exceed $3,500, distribution of benefits shall not
commence unless the Participant consents to such distribution in writing.
Effective with respect to any Participant whose employment Terminates on or
after January 1, 1998, the foregoing references to $3,500 shall be increased to
$5,000 (determined at the time of any distribution).
(d) If the vested percentage of a Participant's Accounts exceed $3,500
(determined at the time of any distribution) a distribution from a Participant's
Accounts may not be made prior to a Participant's Normal Retirement Date (other
than as a result of death) without obtaining the Participant's consent, at such
time and in such manner as may be required by the Code and applicable
regulations thereunder, to such distribution being made prior to his Normal
Retirement Date. If the Former Participant does not consent to such
distribution, benefits shall remain in the Trust Fund and shall continue to
receive Income allocations pursuant to Section
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5.2(a) and shall not be distributed to the Participant (or his Beneficiary)
until his attainment of age 70 1/2 or the Valuation Date coincident with or next
following his death, if sooner. Prior to the date on which the Former
Participant attains age 70 1/2, the Former Participant may elect to receive all
of his Accounts upon written notice to the Committee in a single lump sum.
Effective with respect to any Participant whose employment Terminates on or
after January 1, 1998, the foregoing references to $3,500 shall be increased to
$5,000 (determined at the time of any distribution).
(e) Notwithstanding any other provision of this Plan to the contrary,
unless the Participant or Former Participant elects otherwise, payment of
benefits under this Plan shall commence not later than sixty (60) days after the
close of the Plan Year in which the latest of the following events occurs: (a)
the Participant or Former Participant attains age 65; (b) the tenth (10th)
anniversary of the Plan Year in which the Participant or Former Participant
commenced participation in the Plan; or (c) the Termination of the Participant's
service with the Employer.
(f) Distribution to a Participant who continues to be employed by the
Employer following his attainment of age 70 1/2 of his Accounts must commence no
later than April 1 of the calendar year following the calendar year in which the
Participant or Former Participant attains age 70 1/2. The foregoing shall not
apply to any Participant who (i) has attained age 70 1/2 before January 1, 1988
and (ii) is not a five percent (5%) owner of the Employer, as defined in Section
416(i)(1)(B) of the Code at any time during the Plan Year ending with or within
the calendar year in which he attains age 66 1/2 and any subsequent Plan Year.
Effective January 1, 1997, distribution of his Accounts to a Participant
who is not a five percent (5%) owner of the Employer as defined in Section
416(i)(1)(B) with respect to the Plan Year ending in the calendar year in which
he attains age 70 1/2, who continues to be employed by the Employer following
attainment of age 70 1/2, must commence no later than April 1 of the calendar
year following the calendar year in which the Participant retires.
Distribution to a five percent owner, as described in the preceding
sentence or to a Terminated Participant must continue to commence no later than
April 1 of the calendar year following attainment of age 70 1/2.
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(g) Distribution to an alternate payee of a Participant or Former
Participant, pursuant to a qualified domestic relations order ("QDRO"), as
defined in Section 414(p) of the Code, shall be made as soon as practicable
following the finalization of the QDRO, or such later date as the QDRO may
authorize.
(h) Effective September 1, 1994, the value of Company Stock or the value
of other investment funds shall be determined as of a date that is as close as
administratively feasible to the date on which payment is made. Payments shall
be made as soon as practicable following the Valuation Date coincident with or
next following the distributable event if the necessary paperwork is returned.
Prior to September 1, 1994, the Account value for distribution was determined as
of the end of the preceding Calendar Quarter coincident with or next following
the distributable event.
6.5 Mode of Payment of Benefits. Any amount to which a Participant,
Former Participant or Beneficiary shall become entitled to hereunder shall be
distributed to him in a lump sum.
All distributions pursuant to this Section shall be made in cash,
securities or other property as the Committee in its sole and absolute
discretion may determine, to the extent permitted by the Code and regulations
thereunder.
All distributions shall be made in a lump sum.
All distributions shall satisfy the incidental death limitations of
Section 401(a)(9)(G) of the Code, including the minimum distribution incidental
benefit requirement and the pre-retirement incidental benefit requirement as set
forth in Treas. Reg. Section 1.401-1(b)(ii).
6.6 Designation of Beneficiary. Each Participant or Former Participant
(or beneficiary thereof) from time to time may designate any person or persons
(who may be designated contingently or successively and who may be an entity
other than a natural person) as his Beneficiary or Beneficiaries to whom his
Plan benefits are to be paid if he dies before receipt of all such benefits.
Each Beneficiary designation shall be made on a form prescribed by the Committee
and will be effective only when filed with it during the Participant's or Former
Participant's lifetime. Each Beneficiary designation filed with the Committee
will cancel all
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Beneficiary designations previously filed with it by that Participant or Former
Participant. The revocation of a Beneficiary designation, no matter how
effected, shall not require the consent of any designated Beneficiary.
If any Participant or Former Participant fails to designate a
Beneficiary in the manner provided above, or if the Beneficiary designated dies
before such Participant's or Former Participant's death or before complete
distribution of the Participant's or Former Participant's benefits, such
Participant's or Former Participant's benefits shall be paid in the following
order of priority: first, to the Participant's or Former Participant's surviving
spouse, if any; second, to the Participant's or Former Participant's surviving
children, if any, in equal shares; third, to the estate of the last to die of
such Participant or Former Participant and his Beneficiary or Beneficiaries.
Notwithstanding the foregoing, the surviving spouse of a Participant or
Former Participant shall be deemed to be the Participant's or Former
Participant's designated Beneficiary, and shall be entitled to receive any
distribution on account of the Participant's or Former Participant's death in a
lump sum, unless the Participant or Former Participant designates a Beneficiary
other than the surviving spouse and such surviving spouse consents irrevocably
in writing to the designation of such alternate Beneficiary and the Spouse's
consent acknowledges the effect of such designation and is witnessed by a notary
public or a member of the Committee. The requirements of this paragraph may be
waived if it is established to the satisfaction of the Committee that the
consent may not be obtained because there is no Spouse or because the Spouse
cannot be located or because of such other circumstances as may be prescribed by
regulation.
6.7 Information Required from Beneficiary. If at, after or during the
time when a benefit is payable to any Beneficiary, the Committee upon request of
the Trustee or at its own instance, delivers by registered or certified mail to
the Beneficiary at the Beneficiary's last known address a written demand for his
then address, or for satisfactory evidence of his continued life, or both, and,
if the Beneficiary fails to furnish the information to the Committee within
three years from the mailing of the demand, then the Committee shall distribute
to the party next entitled thereto under Section 6.7 above as if the Beneficiary
were then deceased.
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6.8 In-Service Withdrawals:
(a) Non-Hardship.
(1) A Participant may elect to withdraw an amount equal to all or any
part of his interest in his Rollover Account, including earnings, for any
reason.
(2) Upon attainment of age 59 1/2, a Participant may elect to withdraw
all or any portion of his interest in his Pre-Tax Contribution Account.
(b) Hardship. On account of financial hardship, as defined below, a
Participant may make a withdrawal from his Pre-Tax Contribution Account
attributable to all of his Pre-Tax Contributions (as of the last completed
valuation) and Income allocated as of December 31, 1988 to his Pre-Tax
Contribution Account.
(c) Procedures:
(1) The amount available for withdrawal shall be based on the most
recently completed monthly valuation and shall be withdrawn on a prorata basis
from the investment funds in which the underlying contributions are invested.
(Prior to September 1, 1994 the amount available for withdrawal was determined
as of the last completed quarterly valuation).
The amount charged against a Participant's Pre-Tax Contribution Account
and/or Rollover Account shall be based on the value of Company Stock or value of
other investment funds determined as of a date as close as administratively
feasible to the date of payment (prior to September 1, 1994, as of the end of
the preceding Calendar Quarter).
(2) The existence of a financial hardship and the amount necessary to
meet such hardship, shall be determined by the Committee in accordance with the
rules set forth below. Notwithstanding the foregoing, a hardship withdrawal by a
Participant hereunder may not include any amounts attributable to "qualified
non-elective" and "qualified matching" contributions as defined under Section
401(k) of the Code.
An immediate and heavy financial need shall be limited to a need for
funds for any of the following purposes:
(A) medical expenses described in Section 213(d) of the Code and
incurred by the Participant, his Spouse, or any of the Participant's dependents
(as
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defined in Section 152 of the Code), or expenses necessary for these individuals
to obtain medical care described in Section 213(d) of the Code, as long as such
expenses are ineligible for reimbursement under any health care plans;
(B) costs directly related to the purchase (excluding mortgage payments)
of a principal residence of the Participant;
(C) the payment of tuition, related educational fees, and room and board
expenses for the next 12 months of post-secondary education for the employee, or
the Participant's Spouse, children, or dependents (as defined in Section 152 of
the Code); or
(D) payments necessary to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the Participant's
principal residence.
(3) If the following criteria are met, the Participant will be deemed to
have a financial need for a hardship withdrawal to be made:
(A) the distribution is not in excess of the amount of the immediate and
heavy financial need of the Participant including any associated taxes or
penalties; and
(B) the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the Employer or any Affiliate.
(4) Following payment of any hardship distribution to a Participant
hereunder, such Participant may not make Pre-Tax Contributions (and the
Participant shall be precluded from making any employee contributions to all
other plans maintained by the Employer as defined in Treas. Reg. Section
1.401(k)-1(d)(2)(iv)(B)(4)), during the twelve calendar months immediately
following the effective date of such hardship withdrawal. A Participant may
reenroll in the Plan as of the next Entry Date following the suspension period.
In addition, the Participant may not make any Pre-Tax Contributions to the Plan
for the Participant's taxable year immediately following the taxable year of the
hardship withdrawal, in excess of the applicable limit under Section 402(g) of
the Code for such next taxable year less the amount of such Participant's
Pre-Tax Contributions for the taxable year of the hardship
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distribution. A similar suspension shall apply if any Participant receives a
hardship withdrawal under any other tax-qualified plan maintained by the
Employer or any Affiliate in respect of which such a suspension penalty applies.
Suspension of a Participant's eligibility to make Pre-Tax Contributions under
this Plan shall have no effect on the Participant's right to receive Matching
Contributions with respect to Pre-Tax Contributions made before or after the
suspension period.
6.9 Loans to Participants. The Committee may direct the Trustee to lend
a Participant an amount not in excess of the lesser of (i) 50% of his vested
Accounts, determined as of the most recently completed monthly valuation (prior
to September 1, 1994, as of the last completed quarterly valuation); or (ii)
$50,000 (reduced by the excess, if any, of the highest outstanding balances of
all other loans from the Plan during the one-year period ending on the day
before the loan was made over the outstanding balance of loans from the plan on
the date on which such loan was made). Notwithstanding the foregoing, a
Participant may have only one loan outstanding at any time. Subject to the rules
of the Committee set forth below, the Trustee, upon application by a
Participant, may make a loan to such Participant for any reason. In addition to
such rules as the Committee may adopt, all loans shall comply with the following
terms and conditions:
(a) An application by a Participant for a loan from the Plan shall be
made in writing to the Committee (on a form prescribed by it) whose action
thereon shall be final.
(b) The period of repayment for any loan shall be arrived at by mutual
agreement between the Committee and the borrower, but such period in no event
shall exceed five years. Repayment of interest and principal shall commence at
the discretion of the Committee, but in no event later than the first day of the
third month commencing after the loan was received by the Participant. Repayment
of interest and principal shall be according to a substantially level
amortization schedule of payments. Payment of interest and principal shall be by
payroll deduction. After 26 bi-weekly repayments are made, a Participant may
elect to prepay the remaining balance of his loan in one lump sum payment.
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(c) Each loan shall be made against collateral being the assignment of
the borrower's right, title and interest in and to the Trust Fund to the extent
of the borrowed amount supported by the borrower's collateral promissory note
for the amount of the loan, including interest, payable to the order of the
Trustee.
(d) Each loan shall bear an interest rate determined in the discretion
of the Committee, which rate shall be intended to be commensurate with current
fixed rates charged by institutions in the business of lending money for similar
types of loans.
(e) The minimum amount available for any loan is $500.00.
(f) The procedure to be followed by a Participant in applying for a loan
shall be determined by the Committee and documented by a duly approved
resolution of the Committee. Such resolution shall be attached to and shall be
deemed to be a part of the Plan.
(g) Notwithstanding anything herein to the contrary, the Committee may
direct the Trustee to lend a Former Participant who is a "party in interest" as
that term is defined in Section 3(14) of ERISA, an amount not to exceed the
amount set forth in the first paragraph of this Section 6.9, but only to the
extent required by ERISA. If the Committee directs the Trustee to make a loan to
a Former Participant, the rules set forth in Section 6.9 shall apply to such
loan, provided, however, that repayment of such loan shall not be by payroll
deduction. Repayment shall be made by the Former Participant by check, payable
to the Trustee, based on a monthly repayment schedule established by the
Committee when the Former Participant makes application for the loan.
(h) In the event of (i) default on the loan or (ii) the Participant's
Termination of employment prior to repayment of the entire loan balance, the
Participant shall have the option to repay the remaining loan balance in full as
soon as the necessary paperwork shall be processed. If the loan is not repaid,
the Participant shall have the option to continue to repay the loan as a Former
Participant in accordance with the rules and procedures determined by the
Committee. If repayment is not made or in the event of default, and a
Participant does not elect to repay his loan in full, there shall be distributed
to the Participant upon his Termination of employment the sum of (i) the value
of the Participant's Accounts, without regard to the amount of any outstanding
loan (including any accrued interest thereon) plus (ii) the Participant's
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promissory note. Default means a Participant's failure to repay the loan when
due in accordance with the procedures outlined in subsection (b) hereof.
(i) Loans shall be processed from a Participant's Accounts in the
following order on a prorata basis from the funds in which invested:
(1) Rollover Account;
(2) Pre-Tax Contribution Account;
(3) Matching Contribution Account.
(j) The amount charged against a Participant's Pre-Tax Contribution
Account, Rollover Account or Matching Contribution Account shall be based on the
value of Company Stock or value of other investment funds determined as of a
date as close as administratively feasible to the date the loan is paid to the
Participant. (Prior to September 1, 1994, as of the end of the month in which
the Participant applied for the loan.)
(k) Repayments shall be in reverse order to the order set forth in
subsection (i) and invested according to a Participant's current investment
elections.
(l) A Participant who becomes ineligible to participate in the Plan
because the individual transfers employment to an Affiliate or becomes a
bonafide resident of Puerto Rico shall continue to be able to make loans from
the Plan in accordance with this Section 6.9. Such a Participant shall be
treated as a "party in interest" pursuant to subsection (g) hereof.
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- --------------------------------------------------------------------------------
VII: Trust Fund
- --------------------------------------------------------------------------------
7.1 Exclusive Benefit of Employees and Beneficiaries. All contributions
under this Plan shall be paid to the Trustee and deposited in the Trust Fund.
All assets of the Trust Fund, including investment Income, shall be retained for
the exclusive benefit of Participants, Former Participants and Beneficiaries and
shall be used to pay benefits to such persons or to pay administrative expenses
of the Plan and Trust Fund to the extent not paid by the Employer. Except as
provided in Section 4.3, 5.3 or 12.2, the assets of the Trust Fund shall not
revert to or inure to the benefit of the Employer.
7.2 Investment Directions by Participants. A Participant or Former
Participant may direct the investment of amounts held under his Pre-Tax
Contribution Account and Rollover Account in multiples of ten percent (10%)
subject to the approval of the Committee and in accordance with the terms,
conditions and procedures established by the Committee. Notwithstanding Sections
5.2(a) and 8.4, all earnings and expenses, including commissions and transfer
taxes, realized or incurred in connection with any investments pursuant to a
Participant's or Former Participant's directions shall be credited or charged to
the Participant's or Former Participant's account for which the investment is
made. If a Participant or Former Participant exercises his option to direct the
investment of his Pre-Tax Contribution Account and Rollover Account, then to the
extent permitted by ERISA no person who is otherwise a fiduciary under the Plan
shall be liable under ERISA for any loss, or by reason of any breach which
results from such Participant's exercise of such option. The funds available for
this purpose shall include the Company Stock fund and at least three other
additional funds. A Participant may elect to change the investment (both future
and existing contributions) of his Accounts effective as of the first day of any
Calendar Quarter following written notification to the Committee (using the
value of Accounts determined as of the last business day of the immediately
preceding Calendar Quarter). (Prior to January 1, 1993, investment changes were
as of any semi-annual Valuation Date.)
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7.3 Investment of Matching Contributions.
(a) The Trustee shall invest one-half of the Matching Contributions
allocated to each Participant's Matching Contribution Account in the Company
Stock fund and one-half in that fund which, in the opinion of the Committee,
provides the highest degree of protection for principal and a reasonable rate of
return consistent with the objective of preservation of principal. Effective
January 1, 1993, all Matching Contributions shall be invested in Company Stock.
(b) All dividends or other distributions with respect to the Company
Stock fund shall be applied to purchase additional Company Stock.
(c) The Trustee may acquire Company Stock from any source, including the
public market, in private transactions, the trustee of The Pep Boys -- Manny,
Moe & Jack Flexitrust, or, if the Company agrees, from the Company (from either
treasury shares or authorized but unissued shares). If the Trustee purchases
Common Stock from the Company, the purchase price shall be the mean between the
highest and lowest quoted selling prices of the Common Stock on the New York
Stock Exchange on the date of purchase, except as provided at subsection (e).
(d) A Participant or Former Participant who has satisfied the age
requirement for an Early Retirement Date may irrevocably elect in writing on a
form provided by the Committee that all future Matching Contributions allocable
to him after the Valuation Date following timely delivery of his election be
invested in the investment category established by the Committee, which in the
opinion of the Committee, provides the highest degree of protection for
principal and a reasonable rate of return consistent with the objective of
preservation of principal. In that case, the portion of the Participant's or
Former Participant's Matching Contribution Account invested in Company Stock
shall be liquidated in four installments, each equal to one-fourth of the number
of shares of Company Stock allocated to his Matching Contribution Account, as of
four semi-annual Valuation Dates next following the Participant's or Former
Participant's election (effective as of March 31, 1995, such installments shall
be liquidated in eight installments, each equal to one-eighth of the number of
shares of Company Stock allocated to his Matching Contribution Account, as of
eight quarterly Valuation Dates next
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following the Participant's or Former Participant's election). The proceeds
shall be deposited in the investment category designed to protect principal. A
Participant or Former Participant may not subsequently transfer Matching
Contributions back into the Company Stock fund.
(e) To the extent the Matching Contribution must be invested in Company
Stock, the Company shall make the contribution in Company Stock rather than
cash. Each share of Company Stock contributed shall be valued for purposes of
determining the number of shares to be contributed at the average of the mean
between the highest and lowest quoted selling prices of the Common Stock on the
New York Stock Exchange for each day in the last ten business days of December
of the Plan Year for which the contribution is made.
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VIII: Administration
- --------------------------------------------------------------------------------
8.1 Duties and Responsibilities of Fiduciaries; Allocation of
Responsibility Among Fiduciaries for Plan and Trust Administration. A Fiduciary
shall have only those specific powers, duties, responsibilities and obligations
as are specifically given him under this Plan or the Trust. In general, the
Employer, shall have the sole responsibility for making the contributions
provided for under Section 6.1. The Board of Directors shall have the sole
authority to appoint and remove the Trustee and the Committee and to amend or
terminate, in whole or in part, this Plan or the Trust. The Committee shall have
the sole responsibility for the administration of this Plan, which
responsibility is specifically described in this Plan and the Trust. The
Committee also shall have the right to appoint and remove any Investment Manager
which may be provided for under the Trust and to designate investment and
funding policies under which the Trustee and any Investment Manager shall act,
which provisions are described in Section 8.10. Except as provided in the Trust
Agreement and within the scope of any funding and investment policies designated
by the Committee the Trustee shall have the sole responsibility for the
administration of the Trust and the management of the assets held under the
Trust. It is intended that each Fiduciary shall be responsible for the proper
exercise of his own powers, duties, responsibilities and obligations under this
Plan and the Trust and generally shall not be responsible for any act or failure
to act of another Fiduciary. A Fiduciary may serve in more than one fiduciary
capacity with respect to the Plan (including service both as Trustee and as a
member of the Committee).
8.2 Allocation of Duties and Responsibilities. The Committee shall be
appointed by the Board of Directors and shall have the sole responsibility for
actual administration of the Plan, as delegated by the Board of Directors. The
Committee may also adopt amendments to the Plan, which upon advice of counsel,
it deems necessary or advisable to comply with ERISA or the Code, or any other
applicable law, or to facilitate the administration of the Plan. The Committee
may designate persons other than their members to carry out any of its duties
and responsibilities. Any duties and responsibilities thus allocated must be
described in
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the written instrument. If any person other than an Eligible Employee of the
Employer is so designated, such person must acknowledge in writing his
acceptance of the duties and responsibilities thus allocated to him. All such
instruments shall be attached to, and shall be made a part of, the Plan.
8.3 Administration and Interpretation. Subject to the limitations of the
Plan, the Committee shall have complete authority and control regarding the
administration and interpretation of the Plan and the transaction of its
business, and shall, from time to time, establish such rules as may be necessary
or advisable in connection therewith. To the extent permitted by law, all acts
and determinations of the Committee, as to any disputed question or otherwise,
shall be binding and conclusive upon Participants, Former Participants,
Employees, Spouses, Beneficiaries and all other persons dealing with the Plan.
The Committee may deem its records conclusively to be correct as to the matters
reflected therein with respect to information furnished by an Employee. All
actions, decisions and interpretations of the Committee in administering the
Plan shall be performed in a uniform and nondiscriminatory manner.
8.4 Expenses. The Employer shall pay all expenses authorized and
incurred by the Committee in the administration of the Plan except to the extent
such expenses are paid from the Trust.
8.5 Claims Procedure:
(a) Filing of Claim. Any Participant, Former Participant or Beneficiary
under the Plan ("Claimant"), may file a written claim for a Plan benefit with
the Committee or with a person named by the Committee to receive claims under
the Plan.
(b) Notification on Denial of Claim. In the event of a denial or
limitation of any benefit or payment due to or requested by any Claimant, he
shall be given a written notification containing specific reasons for the denial
or limitation of his benefit. The written notification shall contain specific
reference to the pertinent Plan provisions on which the denial or limitation of
benefits is based. In addition, it shall contain a description of any additional
material or information necessary for the Claimant to perfect a claim and an
explanation of why such material or information is necessary. Further, the
notification shall provide appropriate information as to the steps to be taken
if the Claimant wishes to submit his
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claim for review. This written notification shall be given to a Claimant within
90 days after receipt of his claim by the Committee unless special circumstances
require an extension of time to process the claim. If such an extension of time
for processing is required, written notice of the extension shall be furnished
to the Claimant prior to the termination of said 90-day period and such notice
shall indicate the special circumstances which make the postponement
appropriate. Such extension shall not extend to a date later than 120 days after
receipt of the request for review of a claim.
(c) Right of Review. In the event of a denial or limitation of benefits,
the Claimant or his duly authorized representative shall be permitted to review
pertinent documents and to submit to the Committee issues and comments in
writing. In addition, the Claimant or his duly authorized representative may
make a written request for a full and fair review of his claim and its denial by
the Committee provided, however, that such written request must be received by
the Committee (or his delegate to receive such requests) within sixty days after
receipt by the Claimant of written notification of the denial or limitation of
the claim. The sixty day requirement may be waived by the Committee in
appropriate cases.
(d) Decision on Review.
(i) A decision shall be rendered by the Committee within 60 days after
the receipt of the request for review, provided that where special circumstances
require an extension of time for processing the decision, it may be postponed on
written notice to the Claimant (prior to the expiration of the initial 60 day
period), for an additional 60 days, but in no event shall the decision be
rendered more than 120 days after the receipt of such request for review.
(ii) Notwithstanding subparagraph (i), if the Committee specifies a
regularly scheduled time at least quarterly to review such appeals, a Claimant's
request for review will be acted upon at the specified time immediately
following the receipt of the Claimant's request unless such request is filed
within 30 days preceding such time. In such instance, the decision shall be made
no later than the date of the second specified time following the Committee's
receipt of such request. If special circumstances (such as a need to hold a
hearing) require a further extension of time for processing a request, a
decision shall be rendered
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not later than the third specified time of the Committee following the receipt
of such request for review and written notice of the extension shall be
furnished to the Claimant prior to the commencement of the extension.
(iii) Any decision by the Committee shall be furnished to the Claimant
in writing and in a manner calculated to be understood by the Claimant and shall
set forth the specific reason(s) for the decision and the specific Plan
provision(s) on which the decision is based.
8.6 Records and Reports. The Committee shall exercise such authority and
responsibility as it deems appropriate in order to comply with ERISA and
governmental regulations issued thereunder relating to records of Participants'
account balances and the percentage of such account balances which are
nonforfeitable under the Plan; notifications to Participants; and annual reports
and registration with the Internal Revenue Service.
8.7 Other Powers and Duties. The Committee shall have such duties and
powers as may be necessary to discharge its duties hereunder, including, but not
by way of limitation, the following:
(a) to construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment of any benefits
hereunder;
(b) to prescribe procedures to be followed by Participants, Former
Participants or Beneficiaries filing applications for benefits;
(c) to prepare and distribute information explaining the Plan;
(d) to receive from the Employer and from Participants, Former
Participants and Beneficiaries such information as shall be necessary for the
proper administration of the Plan;
(e) to furnish the Employer, upon request, such annual reports with
respect to the administration of the Plan as are reasonable and appropriate;
(f) to receive, review and keep on file (as it deems convenient or
proper) reports of the financial condition, and of the receipts and
disbursements, of the Trust Fund from the Trustees;
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(g) to appoint or employ advisors including legal counsel to render
advice with regard to any responsibility of the Committee under the Plan or to
assist in the administration of the Plan; and
(h) to determine the status of qualified domestic relations orders under
Section 414(p) of the Code.
The Committee shall have no power to add to, subtract from or modify any
of the terms of the Plan, or to change or add to any benefits provided by the
Plan, or to waive or fail to apply any requirements of eligibility for a benefit
under the Plan.
8.8 Rules and Decisions. The Committee may adopt such rules as it deems
necessary, desirable, or appropriate. All rules and decisions of the Committee
shall be applied uniformly and consistently to all Participants in similar
circumstances. When making a determination or calculation, the Committee shall
be entitled to rely upon information furnished by a Participant, Former
Participant or Beneficiary, the Employer, the legal counsel of the Employer, or
the Trustee.
8.9 Authorization of Benefit Payments. The Committee shall issue proper
directions to the Trustee concerning all benefits which are to be paid from the
Trust Fund pursuant to the provisions of the Plan.
8.10 Application and Forms for Benefits. The Committee may require a
Participant, Former Participant or Beneficiary to complete and file with it an
application for a benefit, and to furnish all pertinent information requested by
it. The Committee may rely upon all such information so furnished to it,
including the Participant's, Former Participant's or Beneficiary's current
mailing address.
8.11 Facility of Payment. Whenever, in the Committee's opinion, a person
entitled to receive any payment of a benefit or installment thereof hereunder is
under a legal disability or is incapacitated in any way so as to be unable to
manage his financial affairs, the Committee may direct the Trustee to make
payments to such person or to his legal representative or to a relative or
friend of such person for his benefit, or he may direct the Trustee to apply the
payment for the benefit of such person in such manner as it considers advisable.
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8.12 Investment Policies. The investment policies of the Plan shall be
established and may be changed at any time by the Committee, which shall
thereupon communicate such policies to any persons having authority to manage
the Plan's assets. The Investment Manager shall have the authority to invest in
any collective investment fund maintained exclusively for the investment of
assets of exempt, qualified employee benefit trusts. The assets so invested
shall be subject to all the provisions of the instrument establishing such
collective investment fund, as amended from time to time, which is hereby
incorporated herein by reference and deemed to be an integral part of the Plan
and corresponding Trust.
The Committee, whose membership is to be determined by the Board of
Directors, is the named fiduciary to act on behalf of the Company in the
management and control of the Plan assets and to establish and carry out a
funding policy consistent with the Plan objectives and with the requirements of
any applicable law. The Committee shall carry out the Company's responsibility
and authority:
(a) To appoint as such term is defined in Section 3(38) of ERISA, one or
more persons to serve as Investment Manager with respect to all or part of the
Plan assets, including assets maintained under separate accounts of an insurance
company.
(b) To allocate the responsibilities and authority being carried out by
the Committee among the members of the Committee.
(c) To take any action appropriate to assure that the Plan assets are
invested for the exclusive purpose of providing benefits to Participant and
their Beneficiaries in accordance with the Plan and defraying reasonable
expenses of administering the Plan, subject to the requirements of any
applicable law.
(d) To establish any rules it deems necessary. The Committee including
each member and former member to whom duties and responsibilities have been
allocated, may be indemnified and held harmless by the Employer with respect to
any breach of alleged responsibilities performed or to be performed hereunder.
8.13 Indemnification. The Employer shall indemnify each individual who
is an officer, director or Employee of the Employer and who may be called upon
or designated to perform fiduciary duties or to exercise fiduciary authority or
responsibility with respect to the
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Plan and shall save and hold him harmless from any and all claims, damages, and
other liabilities, including without limitation all expenses (including
attorneys' fees and costs), judgments, fines and amounts paid in settlement and
actually and reasonably incurred by him in connection with any action, suit or
proceeding, resulting from his alleged or actual breach of such duties,
authority or responsibility, whether by negligence, gross negligence or
misconduct, to the maximum extent permitted by law, provided, however, that this
indemnification shall not apply with respect to any actual breach of such
duties, authority or responsibility, if the individual concerned did not act in
good faith and in the manner he reasonably believed to be in (or not opposed to)
the best interest of the Employer, or, with respect to any criminal action or
proceeding, had reasonable cause to believe his conduct was unlawful.
8.14 Resignation or Removal of the Committee. An Committee member may
resign at any time by giving ten days' written notice to the Employer and the
Trustee. The Board of Directors may remove any member of the Committee by giving
written notice to him and the Trustee. Any such resignation or removal shall
take effect at a date specified on such notice, or upon delivery to the
Committee if no date is specified.
55
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IX: Miscellaneous
- --------------------------------------------------------------------------------
9.1 Nonguarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Employer and any Employee, or
as a right of any Employee to be continued in the employment of the Employer, or
as a limitation of the right of the Employer to discharge any of its Employees,
with or without cause.
9.2 Rights to Trust Assets. No Employee or Beneficiary shall have any
right to, or interest in, any assets of the Trust Fund upon Termination of his
employment or otherwise, except as provided from time to time under this Plan,
and then only to the extent of the benefits payable under the Plan to such
Employee out of the assets of the Trust Fund. All payments of benefits as
provided for in this Plan shall be made solely out of the assets of the Trust
Fund.
9.3 Nonalienation of Benefits. Except as may be permitted by law, and
except as may be required or permitted by a qualified domestic relations order
as defined in Section 414(p) of the Code or pursuant to a Plan loan pursuant to
Section 6.9, benefits payable under this Plan shall not be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, including any such liability which is for alimony or other payments
for the support of a spouse or former spouse, or for any other relative of the
Employee, prior to actually being received by the person entitled to the benefit
under the terms of the Plan; and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any right to
benefits payable hereunder shall be void. The Trust Fund shall not in any manner
be liable for, or subject to, the debts, contracts, liabilities, engagements or
torts of any person entitled to benefits hereunder.
9.4 Discontinuance of Employer Contributions. In the event of permanent
discontinuance of contributions to the Plan by the Employer, the Accounts of all
Participants shall, as of the date of such discontinuance, shall continue to be
fully-vested and nonforfeitable.
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X: Amendments And Action By Employer
- --------------------------------------------------------------------------------
10.1 Amendments Generally. The Company reserves the right to make from
time to time any amendment or amendments to this Plan or Trust which do not
cause any part of the Trust Fund to be used for, or diverted to, any purpose
other than the exclusive benefit of Participants, Former Participants or their
Beneficiaries; provided, however, that the Company may make any amendment it
determines necessary or desirable, with or without retroactive effect, to comply
with ERISA.
No amendment to the Plan shall decrease a Participant's Accounts or
eliminate an optional form of distribution except as may be permitted by the
Code or ERISA.
10.2 Amendments to Vesting Schedule. Any amendment to the Plan which
alters the vesting provisions set forth in Section 6.3 shall be deemed to
include the following terms:
(a) The vested percentage of a Participant in that portion of his
Accounts under the Plan derived from Employer contributions made for Plan Years
ending with or within the later of the date such amendment is adopted or the
date such amendment becomes effective shall not be reduced; and
(b) Each Participant having not less than three years of service at the
later of the date such amendment was effective shall be permitted to elect
irrevocably to have his vested percentage computed under the Plan without regard
to such amendment. Such election must be made within 60 days from the later of
(i) the date the amendment was adopted, (ii) the date the amendment became
effective, or (iii) the date the Participant is issued written notice of such
amendment by the Committee.
Notwithstanding the preceding sentence, no election need be provided for
any Participant whose nonforfeitable percentage in his Accounts derived from
Employer contributions under the Plan, as amended at any time, cannot be less
than such percentage determined without regard to such amendment.
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10.3 Action by Company. Any action by the Company under this Plan shall
be by a duly adopted resolution of the Board of Directors, or by any person or
persons duly authorized by a duly adopted resolution of that Board to take such
action. Any company that has adopted this Plan with approval of the Board of
Directors shall be deemed, by the continuing participation of such company in
the Plan to accept any action of the Board of Directors.
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XI: Successor Employer And Merger Or
Consolidation Of Plans
- --------------------------------------------------------------------------------
11.1 Successor Employer. In the event of the dissolution, merger,
consolidation or reorganization of the Employer, provision may be made by which
the Plan and Trust will be continued by the successor; and, in that event, such
successor shall be substituted for the Employer under the Plan. The substitution
of the successor shall constitute an assumption of Plan liabilities by the
successor, and the successor shall have all of the powers, duties and
responsibilities of the Employer under the Plan.
11.2 Plan Assets. There shall be no merger or consolidation of the Plan
with, or transfer of assets or liabilities of the Trust Fund to, any other plan
of deferred compensation maintained or to be established for the benefit of all
or some of the Participants of the Plan, unless each Participant would (if
either this Plan or the other plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer which is equal to or
greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (if this Plan had then terminated),
and unless a duly adopted resolution of the Board of Directors of the Company
authorizes such merger, consolidation or transfer of assets.
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XII: Plan Termination
- --------------------------------------------------------------------------------
12.1 Right to Terminate. In accordance with the procedures set forth
herein, the Company may terminate the Plan at any time in whole or in part. A
distribution may not be made from the Plan due to the termination of the Plan if
the Employer established or maintains a successor plan, as such terms are
defined in Treas. Reg. Section 1.401(k)-1(d)(3). To the extent permitted by
section 401(k) of the Code and regulations thereunder, in the event of the
dissolution, merger, consolidation or reorganization of the Employer, the Plan
shall terminate and the Trust Fund shall be liquidated unless the Plan is
continued by a successor to the Employer in accordance with Section 11.1.
12.2 Liquidation of the Trust Fund. Upon the complete or partial
termination of the Plan, the Accounts of all Participants affected thereby shall
become fully vested and nonforfeitable, to the extent funded, and the Committee
shall direct the Trustee to distribute the assets remaining in the Trust Fund,
after payment of any expenses properly chargeable thereto, to Participants,
Former Participants and Beneficiaries in proportion to their respective Account
balances.
12.3 Manner of Distribution. To the extent that no discrimination in
value results, any distribution after termination of the Plan may be made, in
whole or in part, in cash, or in securities or other assets in kind, as the
Committee may determine. All non-cash distributions shall be valued at fair
market value at date of distribution.
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XIII: Determination Of Top-Heavy Status
- --------------------------------------------------------------------------------
13.1 General. Notwithstanding any other provision of the Plan to the
contrary, for any Plan Year in which the Plan is Top-Heavy or Super Top-Heavy,
as defined below, the provisions of this Article shall apply, but only to the
extent required by section 416 of the Code and the regulations thereunder.
13.2 Top-Heavy Plan. This Plan shall be Top-Heavy and an Aggregation
Group shall be Top-Heavy if as of the Determination Date for such Plan Year the
sum of the Cumulative Accrued Benefits and Cumulative Accounts of Key Employees
for the Plan Year exceeds 60% of the aggregate of all the Cumulative Accounts
and Cumulative Accrued Benefits. The Cumulative Accrued Benefits and Cumulative
Accounts of those Participants who have not performed any service for the
Employer during the five year period ending on the Determination Date, shall be
disregarded.
(a) If the Plan is not included in a Required Aggregation Group with
other plans, then it shall be Top-Heavy only if (i) when considered by itself it
is Top-Heavy and (ii) it is not included in a Permissive Aggregation Group that
is not a Top-Heavy Group.
(b) If the Plan is included in a Required Aggregation Group with other
plans, it shall be Top-Heavy only if the Required Aggregation Group, including
any permissively aggregated plans, is Top-Heavy.
13.3 Super Top-Heavy Plan. This Plan shall be Super Top-Heavy if it
would be Top-Heavy under Section 13.2, but substituting 90% for 60%.
13.4 Cumulative Accrued Benefits and Cumulative Accounts. The
determination of the Cumulative Accrued Benefits and Cumulative Accounts under
the Plan shall be made in accordance with section 416 of the Code and the
regulations thereunder. The determination of the Plan's Top-Heavy status shall
relate to the proper Determination Date and Valuation Date.
13.5 Definitions.
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(a) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group.
(b) "Determination Date" means with respect to any Plan Year, the last
day of the preceding Plan Year or in the case of the first Plan Year of any
plan, the last day of such Plan Year or such other date as permitted by the
Secretary of the Treasury or his delegate.
(c) "Employer" means the Company and each Participating Employer that
adopts this Plan and all members of a controlled group of corporations (as
defined in Section 414(b) of the Code), all commonly controlled trades or
businesses (as defined in Section 414(c) of the Code), all affiliated service
groups (as defined in Section 414(m) of the Code) and any other affiliated
entities (as provided in Section 414(o) of the Code) of which the Employer is a
part.
(d) "Key Employee" means those individuals described in Section
416(i)(l) of the Code and the regulations hereunder.
(e) "Non-Key Employee" means those individuals who are not Key Employees
and includes former Key Employees.
(f) "Permissive Aggregation Group" means a Required Aggregation Group
plus any other plans selected by the Company provided that all such plans when
considered together satisfy the requirements of Sections 401(a)(4) and 410 of
the Code.
(g) "Required Aggregation Group" means a plan maintained by the Employer
in which a Key Employee is a participant or which enables any plan in which a
Key Employee is a participant to meet the requirements of Code Section 401(a)(4)
or Code Section 410.
(h) "Valuation Date" means the first day of each Plan Year.
13.6 Vesting. For each Plan Year in which the Plan is Top-Heavy or Super
Top-Heavy, the minimum vesting requirements of Code Section 416(b) shall be
satisfied as set forth in Section 6.3.
13.7 Minimum Contributions. For each Plan Year in which the Plan is
Top-Heavy or Super Top-Heavy, minimum Employer contributions for a Participant
who is a Non-
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Key Employee shall be required to be made on behalf of each Participant who is
employed by the Employer on the last day of the Plan Year, regardless of his
level of Compensation and regardless of the number of Hours of Service he has
completed during such Plan Year. The amount of the minimum contribution shall be
the lesser of the following percentages of compensation (as defined in Section
2.1 for purposes of Annual Additions) but limited in amount under Section
401(a)(17) of the Code:
(i) Three percent, or
(ii) The highest percentage at which Company contributions are made
under the Plan for the Plan Year on behalf of any Key Employee.
(A) For purposes of subparagraph (ii), all defined contribution plans
included in a Required Aggregation Group shall be treated as one plan.
(B) Paragraph (ii) shall not apply if the Plan is included in a Required
Aggregation Group and the Plan enables a defined benefit plan included in the
Required Aggregation Group to meet the requirements of Section 401(a)(4) or 410
of the Code.
For purposes of the minimum contribution requirement, any Pre-Tax
Contributions made on behalf of a Key Employee shall be counted as Employer
contributions with respect to such Key Employee, but any Pre-Tax Contributions
made on behalf of a Non-Key Employee shall not be counted as Employer
contributions with respect to such Non-Key Employee.
This Section shall not apply to the extent a Participant other than a
Key Employee is covered by another qualified plan(s) of the Employer and the
Employer has provided that the minimum contribution requirements applicable to
this Plan will be satisfied by the other plan(s).
13.8 Defined Benefit and Defined Contribution Plan Fractions. For any
Plan Year in which the Plan is Super Top-Heavy, or for any Plan Year in which
the Plan is Top-Heavy and the additional minimum contributions or benefits
required under section 416(h) of the Code are not provided, the dollar
limitations in the denominator of the defined benefit plan fraction and defined
contribution plan fraction as defined in Section 415(e) of the Code shall be
multiplied by 100 percent rather than 125 percent. If the application of the
provisions of this Section 13.8 would cause any Participant to exceed 1.0 for
any Limitation Year, then the
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application of this Section 13.8 shall be suspended as to such Participant until
such time as he no longer exceeds 1.0. During the period of such suspension,
there shall be no Employer contributions, forfeitures or voluntary nondeductible
contributions allocated to such Participant under this Plan or under any other
defined contribution plan of the Employer and there shall be no benefit accruals
for such Participant under any defined benefit plan of the Employer.
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- --------------------------------------------------------------------------------
Appendix A
- --------------------------------------------------------------------------------
Participating Employers
- -----------------------
The Pep Boys -- Manny, Moe & Jack
The Pep Boys -- Manny, Moe & Jack of California
Pep Boys -- Manny, Moe & Jack of Delaware, Inc. (effective 1/29/95)
The Pep Boys -- Many, Moe & Jack of Puerto Rico, Inc. (effective 11/1/97)
<PAGE>
Exhibit 10.30
7/10/97
9/19/97
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The Pep Boys Savings Plan -- Puerto Rico
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Table Of Contents
- -------------------------------------------------------------------------------
I: Introduction..............................................................1
II: Definitions And Construction.............................................2
III: Participation And Service...............................................9
IV: Employer Contributions..................................................11
V: Allocations To Participants' Accounts....................................18
VI: Payment Of Benefits.....................................................20
VII: Trust Fund.............................................................29
VIII: Administration........................................................32
IX: Miscellaneous...........................................................39
X: Amendments And Action By Employer........................................41
XI: Successor Employer And Merger Or Consolidation Of Plans..................43
XII: Plan Termination.......................................................44
<PAGE>
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I: Introduction
- -------------------------------------------------------------------------------
The Pep Boys Savings Plan -- Puerto Rico was established by Pep Boys --
Manny, Moe & Jack of Puerto Rico, Inc., effective April 1, 1995, for the benefit
of certain of its salaried and hourly employees and its Participating Employers,
and their beneficiaries. It is to be maintained according to the terms of this
instrument. The Committee has the authority to manage the administration of this
Plan. The assets of this Plan are held in trust by the Trustee in accordance
with the terms of the Trust Agreement, which is considered to be an integral
part of this Plan. Except as may be provided in the Trust Agreement, the Trustee
has the exclusive authority to manage and control the assets of this Plan.
The Plan is intended to be a discretionary "profit sharing" plan as
defined in Article 1165-1(b)(1)(i) of the regulations issued under the Code.
1
<PAGE>
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II: Definitions And Construction
- -------------------------------------------------------------------------------
2.1 Definitions. The following words and phrases, when used in this
Plan, shall have the following meanings:
Accounts means a Participant's Pre-Tax Contribution Account, Matching
Contribution Account, Discretionary QNEC Account and Rollover Account.
Affiliate means any employer which has not adopted this Plan and is not
a Participating Employer, but which is included as a member with the Employer in
a controlled group of corporations, or which is a trade or business (whether or
not incorporated) included with the Employer in a brother-sister group or
combined group of trades or businesses under common control, determined in each
instance in accordance with Section 1028 of the Code.
Beneficiary means a person or persons (natural or otherwise) designated
by a Participant in accordance with the provisions of Section 6.6 (or deemed to
have been designated) to receive any death benefit which shall be payable under
this Plan.
Board of Directors means the Board of Directors of Pep Boys -- Manny,
Moe & Jack of Puerto Rico, Inc.
Calendar Quarter means the three consecutive month periods beginning
each January 1, April 1, July 1 and October 1.
Code means the Puerto Rico Internal Revenue Code of 1994, as it may be
amended, and includes any regulations issued thereunder.
Committee means the individuals appointed under Section 8.1 to
administer the Plan.
Company means Pep Boys -- Manny, Moe & Jack of Puerto Rico, Inc. or its
predecessor company, its successor or successors which elect to continue this
Plan.
Company Stock means the Pep Boys -- Manny, Moe & Jack Common Stock, par
value of $1.00 per share.
Compensation means the total of all remuneration paid during a Plan Year
to a Participant by the Employer for personal services, including overtime pay,
bonuses and
2
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commissions, as reported to a Participant on Box 12 of Form
499-R-2/W-2 P.R. and unless specifically excluded hereunder, Pre-Tax
Contributions, if any, authorized by a Participant under this Plan, but
excluding reimbursement for business, travel or entertainment expenses incurred
by the Participant and not reported to the Puerto Rico Department of the
Treasury as wages and excluding the amount of any fringe benefits reported to
the Puerto Rico Department of the Treasury as wages.
Notwithstanding any provision in this Plan to the contrary, for purposes
of determining Pre-Tax Contributions and Matching Contributions for a
Participant, Compensation shall include such individual's Compensation beginning
with the first payroll period following satisfaction of the service requirements
of Section 3.1; or the date the Participant elects to authorize Pre-Tax
Contributions to the Plan, if later.
Direct Rollover means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
Disability means a medically determinable physical or mental impairment
of a permanent nature which prevents a Participant from performing his customary
employment duties without endangering his health and which would qualify the
Participant for a Disability retirement benefit from the Company's Pension Plan.
Discretionary QNECs means the discretionary qualified nonelective
contributions made by the Employer on a Participant's behalf pursuant to Section
4.1(d).
Discretionary QNEC Account means the account maintained for a
Participant to record his share of Discretionary QNECs under Section 5.2(b)(iii)
and adjustments relating thereto.
Distributee means a Participant or Former Participant. In addition, the
Participant's or Former Participant's Spouse or former Spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 206(d) of ERISA, are Distributees with regard to the interest of the
Spouse or former Spouse.
Early Retirement Date means separation from service with the Employer
and any Affiliate on or after attainment of age 55 and completion of five years
of credited service, as defined in the Company's Pension Plan.
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Effective Date means April 1, 1995, which is the date on which the
provisions of this Plan became effective.
Eligible Employee means an individual who meets all of the following
requirements: (i) is employed by the Employer, (ii) with respect to whom the
Employer is required to withhold taxes from remuneration paid to him by the
Employer for personal services rendered to the Employer, and (iii) who is a bon
afide resident of Puerto Rico within the meaning of the Code, as determined by
the Employer.
Eligible Participant means as of each Entry Date, each Eligible Employee
who has met the requirements for participation in the Plan regardless of whether
he has authorized the Employer to make Pre-Tax Contributions on his behalf to
the Plan.
Eligible Retirement Plan means: (i) an individual retirement account
described in Section 1169(a) of the Code; (ii) an individual retirement annuity
described in Section 1169(b) of the Code; or (iii) a qualified trust described
in Section 1165(e) of the Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to the
surviving Spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
Eligible Rollover Distribution means any distribution of all of the
balance to the credit of the Distributee. An Eligible Rollover Distribution
shall include an unpaid loan that is offset against a Participant's total
Account balance when he receives a distribution at Termination of employment in
accordance with Section 6.9(h) of the Plan.
Employee means any individual employed by the Employer as a common law
employee.
Employer means the Company and any Participating Employer, which with
the approval of the Board of Directors, has adopted this Plan. The Participating
Employers are listed on Appendix A.
Entry Date means the first day of each Calendar Quarter.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulations promulgated thereunder.
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<PAGE>
Excess Contributions means with respect to each Plan Year, the amount
determined for Highly Compensated Eligible Participants under the procedure set
forth in Article 1165-8(f)(2) of the regulations issued under the Code or any
successor thereto.
Fiduciary means the Employer, the Board of Directors, the Committee or
the Trustee, but only with respect to the specific responsibilities of each with
respect to Plan and Trust administration.
Former Participant means any former Employee who has credits in his
Accounts as of the close of any Plan Year.
Highly Compensated Eligible Participant means those Eligible
Participants who are Highly Compensated Employees.
Highly Compensated Employee means any Employee whose Compensation is
higher than the Compensation of two-thirds of all Employees.
Hours of Service means:
(a) Performance of Duties. The actual hours for which an
Employee is paid or entitled to be paid for the performance of duties by the
Employer;
(b) Nonworking Paid Time. Each hour for which an Employee is
paid or entitled to be paid by the Employer on account of a period of time
during which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity,
disability, layoff, jury duty, military duty or leave of absence; provided,
however, no more than 501 Hours of Service shall be credited to an Employee on
account of any single continuous period during which he performed no duties; and
provided further that no credit shall be given for payments made or due under a
plan maintained solely for the purpose of complying with applicable workmen's or
unemployment compensation or disability insurance laws or for payments which
solely reimburse an Employee for medical or medically related expenses incurred
by the Employee;
(c) Back Pay. Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the Employer; provided,
however, Hours of Service credited under paragraphs (a), (b) and (c) above shall
not be recredited by operation of this paragraph;
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<PAGE>
(d) Equivalencies. With respect to full-time Employees only,
the Committee has adopted the following equivalency method for counting Hours of
Service that are permissible under regulations issued by the United States
Department of Labor: (1) 45 Hours of Service for each week in which an Employee
is credited with at least one Hour of Service. Actual Hours shall be counted for
those Employees who are not employed on a full time basis.
The adoption of any equivalency method for counting Hours of Service
shall be evidenced by a certified resolution of the Committee, which shall be
attached to and made part of the Plan. Such resolution shall indicate the date
from which such equivalency shall be effective; and
(e) Miscellaneous. Unless the Committee directs otherwise, the
methods of determining Hours of Service when payments are made for other than
the performance of duties and of crediting such Hours of Service to Plan Years
set forth in Regulations ss.2530.200b-2(b) and (c) promulgated by the United
States Secretary of Labor shall be used hereunder and are incorporated by
reference into the Plan.
Participants on military leaves of absence who are not directly or
indirectly compensated or entitled to be compensated by the Employer while on
such leave shall be credited with Hours of Service as required by Section 9 of
the Military Selective Service Act.
Notwithstanding any other provision of this Plan to the contrary, an
Employee shall not be credited with Hours of Service more than once with respect
to the same period of time.
Eligible Employees shall be credited with any Hours of Service required
to be credited to them in accordance with the Family and Medical Leave Act and
The Uniformed Services Employment and Reemployment Rights Act of 1994.
Income means the net gain or loss of the Trust Fund from investments, as
reflected by interest payments, dividends, realized and unrealized gains and
losses on securities, other investment transactions and expenses paid from the
Trust Fund. In determining the Income of the Trust Fund for any period, assets
shall be valued on the basis of fair market value, except for any investment
that the Committee determines shall be valued on the basis of book or contract
value.
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<PAGE>
Investment Manager means an investment adviser, bank or insurance
company, meeting the requirements of Section 3(38) of ERISA appointed by the
Company to manage the Plan's assets in accordance with the Trust Agreement.
Matching Contributions means the contributions made by the Employer
pursuant to Section 4.1(c).
Matching Contribution Account means the account maintained for a
Participant to record his share of Matching Contributions under Section
5.2(b)(ii) and adjustments relating thereto.
Normal Retirement Date means the date on which a Participant attains age
65.
Participant means an Eligible Employee participating in the Plan in
accordance with the provisions of Section 3.2.
Participating Employer means any direct or indirect subsidiary of the
Company or any other entity designated by the Board of Directors, which has
adopted this Plan with the approval of the Company.
Plan means the Pep Boys Savings Plan -- Puerto Rico, as amended from
time to time.
Plan Year means the 12 consecutive month period beginning on April 1 and
ending on March 31. Effective January 1, 1998, the Plan Year shall be changed to
the calendar year and the period beginning on April 1, 1997 and ending on
December 31, 1997 shall constitute a short Plan Year.
Pre-Tax Contributions means the contributions made by the Employer on a
Participant's behalf pursuant to Section 4.1(a).
Pre-Tax Contribution Account means the account maintained for a
Participant to record his share of Pre-Tax Contributions under Section 5.2(b)(i)
and adjustments relating thereto.
Retirement means Termination of employment with the Employer at or after
Normal Retirement Date.
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<PAGE>
Rollover Account means the account maintained for a Participant to
record the amount of contributions he has rolled over to the Plan pursuant to
Section 4.7 and adjustments relating thereto.
Spouse (surviving spouse) means the spouse or surviving spouse of the
Participant or Former Participant; provided that a former spouse will be treated
as the spouse or surviving spouse to the extent provided under a qualified
domestic relations order as described in Section 206(d) of ERISA.
Terminated or Termination means a termination of employment with the
Employer or with an Affiliate for any reason other than a transfer of employment
from the Employer to an Affiliate or from an Affiliate to another Affiliate. A
transfer of employment from the Company to any U.S. based Pep Boys entity shall
not constitute a Termination of employment.
Trust (or Trust Fund) means the fund known as the "Pep Boys Savings Plan
- -- Puerto Rico Trust," maintained by the Trustee in accordance with the terms of
the Trust Agreement, as amended from time to time, which constitutes a part of
this Plan.
Trustee or Trustees means any corporation or individuals
appointed by the Board of Directors of the Company to administer the Trust.
Valuation Date means the last business day of each month.
Year of Eligibility Service means a 12 consecutive month period
beginning on the date an Eligible Employee's employment commences (the "initial
eligibility computation period"), provided such Eligible Employee is credited
with at least 1,000 Hours of Service. If an Eligible Employee is not credited
with 1,000 Hours of Service in the initial eligibility computation period, then
the eligibility computation period shall be the Plan Year, beginning with the
Plan Year that includes the first anniversary of the Eligible Employee's initial
eligibility computation period.
2.2 Construction. The masculine gender, where appearing in the
Plan, shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary.
8
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- -------------------------------------------------------------------------------
III: Participation And Service
- -------------------------------------------------------------------------------
3.1 Eligibility to Participate. Any Eligible Employee shall be eligible
to become a Participant as of the date on which he attains age 21 and is
credited with a Year of Eligibility Service.
3.2 Commencement of Participation. Each Eligible Employee who has
satisfied the requirements of Section 3.1 shall commence participation in the
Plan on the Entry Date coincident with or next following the date he satisfies
such requirement.
Each Eligible Employee who is eligible for participation in the Plan
shall become a Participant by filing the appropriate forms with the Committee,
and shall supply such information as is reasonably necessary for the
administration of this Plan.
3.3 Cessation of Participation. An Eligible Employee shall cease to be a
Participant upon the earliest of: (i) the date on which he retires under the
retirement provisions of the Plan; (ii) the date on which his employment with
the Employer terminates for any reason, including death or Disability; or (iii)
the date on which he ceases to be an Eligible Employee.
3.4 Special Rules for Eligibility Purposes. For purposes of determining
an Eligible Employee's eligibility to participate in the Plan, Hours of Service
shall include an Employee's Hours of Service (i) with an Affiliate after it
became an Affiliate hereunder including The Pep Boys -- Manny, Moe & Jack; or
(ii) while an Employee, but not an Eligible Employee, of the Employer or an
Affiliate, after it became an Affiliate hereunder.
3.5 Participation and Service upon Reemployment. Upon the reemployment
of any person after the Effective Date who had previously been employed by the
Employer on or after the Effective Date, the following rules shall apply in
determining his participation in the Plan and his Years of Service under Section
3.4.
If the reemployed Employee was not a Participant in the Plan during his
prior period of employment, he must meet the requirements of Section 3.1 for
participation in the Plan as if he were a new Employee. Any Years of Eligibility
Service in which he was credited with 1,000 Hours of Service during his prior
period of employment shall be reinstated upon his
9
<PAGE>
reemployment. If the reemployed Employee was a Participant during his prior
period of employment, he shall resume participation in the Plan as soon as
administratively practicable following his reemployment by the Employer.
3.6 Transfers to Affiliates and Change in Status. A Participant's status
as such under the Plan shall be modified upon and after the date as of which a
Participant (i) is transferred to an Affiliate including The Pep Boys -- Manny,
Moe & Jack; (ii) becomes an Employee whose terms of employment are covered by a
collective bargaining agreement that does not provide for participation in this
Plan; or (iii) ceases for any other reason to be an Eligible Employee while
still employed by the Employer.
The Participant shall share in Employer contributions only to the extent
of his Compensation up to the time such transfer or change in status occurs and
shall not thereafter, unless he later is transferred back to the Employer or
again becomes an Eligible Employee and becomes eligible under the terms of the
Plan to share in such allocations. He, however, shall share in Income
allocations pursuant to Section 5.2(a).
3.7 Transfers From Affiliates and Change in Status. Any Employee who
transfers to the Employer from an Affiliate including The Pep Boys -- Manny, Moe
& Jack or who becomes an Eligible Employee eligible for participation in the
Plan, shall be eligible to participate in the Plan on the later of the first
Entry Date coincident with or next following his satisfaction of the eligibility
requirements of Section 3.1 or the first Entry Date coincident with or next
following his change in status.
The Participant shall share in Employer contributions only to
the extent of his Compensation after such transfer or change in status occurs if
he becomes an Eligible Employee and becomes eligible under the terms of the Plan
to share in such allocations.
10
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- -------------------------------------------------------------------------------
IV: Employer Contributions
- -------------------------------------------------------------------------------
4.1 Employer Contributions.
(a) Pre-Tax Contributions.
(i) Subject to the limitations of Section 4.4, each
Participant shall have the option to authorize the Employer, in writing and in
accordance with procedures established by the Committee, to contribute to the
Plan for a Plan Year on his behalf, an amount equal to any whole percentage of
his Compensation from one percent (1%) up to ten percent (10%) (as determined
without regard to this Section 4.1(a)) for such Plan Year. Such authorization
shall be in the form of an election by the Participant to have his Compensation
reduced by payroll withholding. Payroll deduction shall commence as soon as
practicable following the Entry Date on which an Eligible Employee becomes a
Participant or elects to make Pre-Tax Contributions to the Plan. Such withheld
amounts are to be transmitted by the Employer to the Trustee as of the earliest
date on which such amounts can reasonably be segregated from the Employer's
general assets. Effective February 3, 1997, such withheld amounts are to be
transmitted by the Employer to the Trustee no later than the date required by
United States DOL Reg. Section 2510.3-102(b). The amount of such contributions,
together with contributions under Sections 4.1(c) and (d), shall not exceed the
maximum amount allowable as a deduction under the Code for the Plan Year.
(ii) Notwithstanding the foregoing, the Participant
shall be prohibited from authorizing any Pre-Tax Contributions to be made on his
behalf under this Plan and elective contributions under any other plan, in
excess of the applicable limit under Section 1165(e)(7) of the Code in effect
for the Plan Year to which such Pre-Tax Contributions relate. In the event a
Participant has made excess deferrals under the Plan (or, if not, has determined
that excess deferrals will be considered to exist under this Plan), then not
later than the first day of April following the close of the Participant's
taxable year, the Participant may notify the Plan of the amount of the excess
deferrals hereunder. The Participant shall be deemed to have notified the Plan
of excess deferrals to the extent he has excess deferrals for the taxable year
calculated by
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<PAGE>
taking into account only elective deferrals under the Plan and other plans of
the Employer or Affiliate. The Employer may notify the Plan on behalf of the
Participant under these circumstances.
Not later than the first April 15 following the close of the taxable
year, the Plan shall distribute to the Participant the amount designated above,
including any Income allocated thereto. The Income attributable to a
Participant's excess deferral pursuant to this Section 4.1(a)(ii) for the Plan
Year during which such excess deferral arose shall be determined in accordance
with Article 1165-8(g)(8) of the regulations issued under the Code. Unless
provided for by the Committee, any Income attributable to a Participant's excess
deferrals for the period between the end of the Plan Year and the date of
distribution shall be disregarded. Excess deferrals to be distributed for a Plan
Year shall be reduced by Excess Contributions previously distributed for the
Plan Year beginning in such taxable year as set forth in Section 4.4.
A Participant who has excess deferrals for a taxable year may receive a
corrective distribution of excess deferrals during the same year. This
corrective distribution shall be made only if:
(A) The Participant designates the
distribution as an excess deferral. The Participant shall be deemed to have
designated the distribution to the extent the Participant has excess deferrals
for the taxable year calculated by taking into account only elective deferrals
under the Plan and other plans of the Employer and Affiliate. The Employer may
make the designation on behalf of the individual under these circumstances.
(B) The correcting distribution is made after
the date on which the Plan received the excess deferral.
(C) The Plan designates the distribution as
a distribution of excess deferrals.
The term "excess deferrals" means the excess of an individual's elective
deferrals for any taxable year, as defined in Article 1165-8(g)(2) of the
regulations issued under the Code, over the applicable limit under Section
1165(e)(7) for the taxable year.
Notwithstanding the foregoing, the Committee may further limit a
Participant's right to make Pre-Tax Contributions to the Plan if in the sole
judgment and discretion of the
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<PAGE>
Committee, such limits are necessary to ensure the Plan's compliance with the
requirements of Section 1165(e) of the Code.
(b) Change in Amount of Pre-Tax Contributions. Effective as of
any Entry Date, upon written notice to the Committee to be effective as of the
full payroll period following the processing of such notice, each Participant
shall have the option to change the amount of Pre-Tax Contributions he has
authorized the Employer to contribute to the Plan on his behalf pursuant to
Section 4.1(a) in accordance with rules established therefore by the Committee.
Notwithstanding the foregoing, a Participant may authorize the Employer to cease
making Pre-Tax Contributions on his behalf at any time, effective as of the next
full payroll period following the processing of written notice to the Committee.
A Participant who has ceased making Pre-Tax Contributions may again authorize
Pre-Tax Contributions to be made to the Plan on his behalf as of any Entry Date
upon written notice to the Committee, to be effective as of the next full
payroll following the processing of such notice.
(c) Matching Contributions. Subject to the limitations of
Section 4.4, the Employer shall contribute for each Plan Year, an amount, if
any, to be determined by the Board of Directors. Unless and until changed by the
Board of Directors, such amount shall be as follows:
The lesser of (i) 50% of the Participant's Pre-Tax Contributions for
each Calendar Quarter in which he contributed; and (ii) three percent (3%) of
the Participant's Compensation for the Calendar Quarter. In order to share in
the allocation of the Employer's Matching Contribution, a Participant must be
employed by the Employer on the last day of the Plan Year or have Terminated
employment during the Plan Year due to Normal Retirement, Early Retirement or
Disability prior to the last day of the Plan Year. A Participant who (i) no
longer meets the definition of an Eligible Employee because the individual no
longer is a bona fide resident of Puerto Rico within the meaning of the Code, or
(ii) transfers to any Affiliate prior to the end of the Plan Year, shall be
eligible for an allocation of the Employer's Matching Contribution,
notwithstanding the preceding sentence, provided that the individual is employed
by the Employer or an Affiliate on the last day of the Plan Year. The Matching
Contribution shall be made once each Plan Year, but based on the Pre-Tax
Contributions that are made in each
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<PAGE>
Calendar Quarter by those Participants eligible to share in the allocation of
the Matching Contribution.
The amount of such contributions shall not exceed the maximum amount
allowable as a deduction under the Code for such Plan Year.
(d) Discretionary QNECs. Subject to the limitations of Section
4.4, the Employer shall contribute for each Plan Year an amount, if any, as
determined by the Board of Directors on behalf of some or all Participants who
are not Highly Compensated Eligible Participants. The amount of such
contribution, together with contributions under Sections 4.1(a) and (c), shall
not exceed the maximum amount allowable as a deduction under the Code for such
Plan Year. It is intended that this contribution shall constitute a qualified
nonelective contribution within the meaning of Code Section 1165(e)(3)(E)(ii) or
any successor thereto.
4.2 Time and Manner of Contribution. All Employer contributions shall be
paid directly to the Trustee, and except as provided in Section 4.1(a), a
contribution for any Plan Year shall be made not later than the date prescribed
by law for filing the Employer's Puerto Rico income tax return, including
extensions, for such Plan Year.
4.3 Conditions on Employer Contributions. To the extent permitted or
required by ERISA and the Code, contributions under this Plan are subject to the
following conditions:
(a) If the Employer makes a contribution, or any part thereof,
by good faith mistake of fact, such contribution or part thereof, or its then
current value if less, shall be returned to the Employer within one year after
such contribution is made; and
(b) Contributions to the Plan are specifically conditioned upon
their deductibility under the Code; to the extent a deduction is disallowed for
any such contribution, such amount, or its then current value if less, shall be
returned to the Employer within one year after the disallowance of the
deduction.
4.4 Limitations on Pre-Tax Contributions. The amount of Pre-Tax
Contributions made in each Plan Year on behalf of all Eligible Participants
under the Plan shall comply with either (i) or (ii) below.
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<PAGE>
(i) The average deferral percentage for the Highly Compensated
Eligible Participants shall not exceed the average deferral percentage for all
other Eligible Participants multiplied by 125%; or
(ii) The average deferral percentage for Highly Compensated
Eligible Participants shall not be greater than the average deferral percentage
of all other Eligible Participants multiplied by 200% and the excess of the
average deferral percentage for Highly Compensated Eligible Participants over
all other Eligible Participants shall not exceed two percentage points.
Compliance with (i) and (ii) above, shall be determined in accordance
with the rules set forth in Section 1165(e)(3)(A) of the Code, Article
1165-B(b)(4) of the regulations issued under the Code, or any successors
thereto.
If the Committee determines, in its sole discretion, with respect to any
Plan Year, that the Plan will (or may) fail (i) or (ii) above, the Committee
shall take any action, that it deems appropriate, including imposing limitations
on Pre-Tax Contributions made by Highly Compensated Eligible Participants, for
the Plan to satisfy (i) or (ii) above.
If the amount of Pre-Tax Contributions authorized by Highly Compensated
Eligible Participants in a Plan Year would not comply with either (i) or (ii)
above, then by the last day of the following Plan Year, the Excess Contributions
for such Plan Year (including any Income attributable to such contributions as
determined by the Committee) shall be distributed to Highly Compensated Eligible
Participants on the basis of the respective portions of such Excess
Contributions attributable to each such Highly Compensated Eligible Participant
in accordance with Article 1165-8(f)(4) of the regulations issued under the
Code.
If Excess Contributions are distributed to Highly Compensated Eligible
Participants, the amount of excess of each Highly Compensated Eligible
Participant is the amount by which his Pre-Tax Contributions must be reduced for
the Participant's deferral percentage to equal the highest permitted actual
deferral percentage under the Plan. To calculate the highest permitted actual
deferral percentage under the Plan, the actual deferral percentage of the Highly
Compensated Eligible Participant with the highest deferral percentage is reduced
by the amount required to cause the Participant's actual deferral percentage to
equal the percentage
15
<PAGE>
of the Highly Compensated Eligible Participant with the next highest actual
deferral percentage. If a lesser reduction would enable the arrangement to
satisfy the actual deferral percentage test, only such lesser reduction need be
made. This process shall be repeated until the requirements set forth above are
met. The highest deferral percentage remaining under the Plan after leveling is
the highest permitted actual deferral percentage. In no event shall the amount
of Excess Contributions to be distributed for a Plan Year with respect to any
Highly Compensated Eligible Participant exceed the amount of Pre-Tax
Contributions made on behalf of the Highly Compensated Eligible Participant for
the Plan Year.
The amount of Excess Contributions for a Highly Compensated Eligible
Participant shall be determined by reducing the contribution percentage of the
Highly Compensated Eligible Participants who have the highest percentages to the
maximum acceptable level. The amount of Excess Contributions to be reduced shall
be reduced by excess deferrals, as defined in Section 4.1(a)(ii), previously
distributed for the taxable year ending in the same Plan Year.
Alternatively, the Committee may take such other actions as may be
permissible under the Code to ensure the Plan's compliance with the requirements
of Section 1165(e) of the Code, including, without limitation the allocation of
the Employer's Discretionary QNEC to some or all Eligible Participants who are
not Highly Compensated Eligible Participants in accordance with Section 4.1(d).
4.5 Income Attributable to Excess Contributions. The Income attributable
to a Participant's Excess Contributions pursuant to Section 4.4 for the Plan
Year during which such Excess Contributions arose shall be determined in
accordance with Article 1165-8(f)(4)(ii) of the regulations issued under the
Code.
4.6 Requirements for Qualified Non-Elective Contributions and Qualified
Matching Contributions. Any contributions that are designated as qualified
non-elective contributions shall meet the requirements of Section
1165(e)(3)(E)(ii) of the Code. In addition, qualified non-elective contributions
shall be fully vested at all times. Such contributions shall be distributed from
the Plan only in accordance with the events enumerated in the Plan provided
however, that in no event shall such amounts be available for hardship
withdrawal.
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<PAGE>
4.7 Rollovers. A Participant or an Eligible Employee, with the prior
discretionary approval of the Committee, may transfer, or have transferred to
the Trust any property which has been distributed to him whether such amount is
(i) transferred directly from the Trust of another plan that is qualified under
Section 1165(a) of the Code, as an eligible rollover distribution to this Plan;
or (ii) transferred by the Participant after his receipt of such amount from a
plan qualified under 1165(a) of the Code; provided, however, that such amount
qualifies as a rollover amount as defined by the Code at the time of the
transfer.
The amount of cash or the fair market value of any other property
transferred to the Trust pursuant to this Section 4.7 shall be credited to the
Participant's Rollover Account as of the Valuation Date next following such
transfer to the Trust and shall be nonforfeitable at all times.
4.8 Rollovers from the Plan. Notwithstanding any provision of the Plan
to the contrary, a Distributee may elect, at the time and in the manner
prescribed by the Committee, to have an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan, specified by the Distributee, in a
Direct Rollover. The Eligible Rollover Distribution shall be made payable to the
Eligible Retirement Plan and delivered to the Distributee or paid directly to
the Eligible Retirement Plan.
4.9 In Writing Requirement. Unless otherwise required by law, a
requirement that a transaction under the Plan be "in writing" may, at the
discretion of the Committee, be effected through an interactive telephone system
or by other types of electronic communications.
4.10 Military Service. Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service shall be provided in accordance with Section 414(u) of the
United States Internal Revenue Code of 1986, as amended.
17
<PAGE>
- --------------------------------------------------------------------------------
V: Allocations To Participants' Accounts
- --------------------------------------------------------------------------------
5.1 Individual Accounts. The Committee shall create and maintain
adequate records to disclose the interest in the Trust of each Participant,
Former Participant and Beneficiary. Such records shall be in the form of
individual Accounts and credits, and charges shall be made to such Accounts in
the manner herein described. While such Accounts shall distinguish between
Matching Contributions and adjustments thereto and Pre-Tax Contributions and
adjustments thereto and Discretionary QNECs and adjustments thereto, there shall
be one Account maintained for each Participant reflecting the Matching
Contributions, Pre-Tax Contributions and Discretionary QNECs made to the Plan by
or on behalf of each Participant. There also shall be maintained one Account for
each Participant reflecting his Rollover Account, if any. The maintenance of
individual Accounts is for accounting purposes only, and a segregation of the
assets of the Trust Fund with respect to each Account shall not be required.
5.2 Account Adjustments. The Accounts of Participants, Former
Participants and Beneficiaries shall be adjusted in accordance with the
following:
(a) Income. The Income of the Trust Fund shall be allocated as of
each Valuation Date to the Accounts of Participants, Former Participants and
Beneficiaries who have unpaid balances in their Accounts on a Valuation Date in
proportion to the balances in such Accounts immediately after the next preceding
Valuation Date, but after (i) first reducing each such Account by 100% of any
distributions, loans or withdrawals from such Accounts during the interim
period; and (ii) increased by fifty percent (50%) of Pre-Tax Contributions,
rollover contributions and loan repayments that are made after the last
Valuation Date and during the month that includes the subsequent Valuation Date.
For purposes of this subsection, to the extent that the Participant has
directed the management of his Account(s) pursuant to Section 7.2, or taken a
loan from his Account(s) pursuant to Section 6.9, then, to such extent, the
Income with respect to his Accounts shall be separately determined by reference
to such investments. Otherwise, all valuations hereunder shall be based on the
fair market value of the assets in the Trust Fund on the Valuation Date.
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(b) Employer Contributions. The Employer's contribution for
each Plan Year shall be allocated among the Pre-Tax Contribution Accounts,
Matching Contribution Accounts and Discretionary QNEC Accounts of those eligible
Participants as set forth below:
(i) Pre-Tax Contributions. The Employer's Pre-Tax
Contribution for the Plan Year made pursuant to Section 4.1(a) shall be credited
directly to the Pre-Tax Contribution Account of each Participant who authorized
a Pre-Tax Contribution.
(ii) Matching Contributions. The Employer's Matching
Contribution for the Plan Year made pursuant to Section 4.1(c) shall be
allocated to the Matching Contribution Accounts of those Participants described
in Section 4.1(c).
(iii) Discretionary QNECs. The Employer's
Discretionary QNEC for the Plan Year made pursuant to Section 4.1(d), shall be
credited directly to the Discretionary QNEC Accounts of some or all Eligible
Participants who are not Highly Compensated Eligible Participants as of the last
day of the Plan Year and who are designated to receive an allocation of such
contribution.
(c) Deemed Date of Allocation. All credits or deductions made
under this Article to Participants' Accounts shall be deemed to have been made
no later than the last day of the Plan Year though actually determined
thereafter.
5.3 No Rights Created by Allocation. Any allocation made and credited to
the Account of a Participant, Former Participant or Beneficiary under this
Article shall not cause such Participant, Former Participant or Beneficiary to
have any right, title or interest in or to any assets of the Trust Fund except
at the time or times, and under the terms and conditions, expressly provided in
this Plan.
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VI: Payment Of Benefits
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6.1 Normal Retirement or Termination. If a Participant's employment is
Terminated by reason of his Normal Retirement or Termination, then such
Participant shall be entitled to receive the entire amount credited to his
Accounts in the manner and at the time provided in Sections 6.4 and 6.5.
6.2 Death. In the event that the Termination of employment of a
Participant is caused by his death, or in the event that a Participant or Former
Participant who is entitled to receive distributions pursuant to Section 6.1
dies prior to receiving the full amount of such distributions, the entire amount
credited to his Accounts shall be paid to his Beneficiary in the manner and at
the time provided in Sections 6.4 and 6.5.
6.3 Vesting. A Participant shall be fully vested at all times in
his Accounts.
6.4 Time of Payment of Benefits.
(a) A distribution to a Participant of his Accounts on account
of Retirement pursuant to Section 6.1 on or after Normal Retirement Date shall
be made as soon as practicable following the Valuation Date coincident with or
next following such Retirement after receipt by the Committee of the applicable
forms.
(b) Distribution of a Participant's or Former Participant's
Accounts, payable on account of the death of a Participant or Former Participant
pursuant to Section 6.2, shall be distributed as follows:
(1) In the case of a Participant's death prior to
commencement of his benefits in a single lump sum payment, as soon as
practicable following such death, but no later than December 31 of the year in
which occurs the fifth anniversary of the Participant's or Former Participant's
death, (but no earlier than the Valuation Date coincident with or next following
his date of death).
(2) Notwithstanding subsection (1) above, in the case
of a Participant's or Former Participant's death prior to commencement of his
benefits, if such Participant's Beneficiary is his Spouse, then such
distribution shall not be required to begin prior
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to the date on which the Participant or Former Participant would have attained
age 70 1/2, had he lived. At such time, distribution must be made in the form
provided for in Section 6.5. Prior to the date on which the Participant or
Former Participant would have attained age 70 1/2, the Spouse may elect to
receive the Participant's or Former Participant's Accounts, upon written notice
to the Committee in a lump sum.
(3) Any amount payable to a child pursuant to the
death of a Participant or Former Participant shall be treated as if it were
payable to the Participant's or Former Participant's Spouse if such amount would
become payable to the Spouse upon such child reaching majority (or other
designated event permitted by regulations).
(c) Subject to subsection (e) of this Section 6.4, a
distribution to a Participant of his Accounts, payable on account of other
Termination of employment pursuant to Section 6.1, shall be made as soon as
practicable following the Valuation Date coincident with or next following such
Termination after receipt by the Committee of the applicable forms. In the case
of a distribution of a Participant's Accounts that does not exceed $3,500, if
the Participant fails to complete all forms or applications needed to properly
process the distribution pursuant to rules set by the Committee, then the
distribution shall be automatically made as soon as administratively feasible
after the next Valuation Date that is coincident with or next follows the date
that is 90 days following the event giving rise to the distribution. If the
Participant's Accounts exceed $3,500, distribution of benefits shall not
commence unless the Participant consents to such distribution in writing.
Effective January 1, 1998, the reference to $3,500 shall be increased to $5,000
with respect to distributions that are made on or after that date.
(d) If the vested percentage of a Participant's Accounts exceed
$3,500 (determined at the time of any distribution) a distribution from a
Participant's Accounts may not be made prior to a Participant's Normal
Retirement Date (other than as a result of death) without obtaining the
Participant's consent, at such time and in such manner as may be required by the
Code and applicable regulations thereunder, to such distribution being made
prior to his Normal Retirement Date. Effective January 1, 1998, the references
to $3,500 shall be increased to $5,000 with respect to distributions that are
made on or after that date. If the Former Participant does not consent to such
distribution, benefits shall remain in the Trust Fund and shall continue to
receive
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Income allocations pursuant to Section 5.2(a) and shall not be distributed to
the Participant (or his Beneficiary) until his attainment of age 70 1/2 or the
Valuation Date coincident with or next following his death, if sooner. Prior to
the date on which the Former Participant attains age 70 1/2, the Former
Participant may elect to receive all of his Accounts upon written notice to the
Committee in a single lump sum.
(e) Notwithstanding any other provision of this Plan to the
contrary, unless the Participant or Former Participant elects otherwise, payment
of benefits under this Plan shall commence not later than sixty (60) days after
the close of the Plan Year in which the latest of the following events occurs:
(a) the Participant or Former Participant attains age 65; (b) the tenth (10th)
anniversary of the Plan Year in which the Participant or Former Participant
commenced participation in the Plan; or (c) the Termination of the Participant's
service with the Employer.
(f) Distribution of his Accounts to a Participant who continues
to be employed by the Employer following attainment of age 70 1/2, shall be made
in accordance with Section 6.5 no later than April 1 of the calendar year
following the calendar year in which the Participant retires.
(g) Distribution to an alternate payee of a Participant or
Former Participant, pursuant to a qualified domestic relations order ("QDRO"),
as defined in Section 206(d) of ERISA, shall be made as soon as practicable
following the finalization of the QDRO, or such later date as the QDRO may
authorize.
(h) The value of Company Stock or the value of other investment
funds shall be determined as of a date that is as close as administratively
feasible to the date on which payment is made. Payments shall be made as soon as
practicable following the Valuation Date coincident with or next following the
distributable event if the necessary paperwork is returned.
6.5 Mode of Payment of Benefits. Any amount to which a Participant,
Former Participant or Beneficiary shall become entitled to hereunder shall be
distributed to him in a lump sum.
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All distributions pursuant to this Section shall be made in cash,
securities or other property as the Committee in its sole and absolute
discretion may determine, to the extent permitted by the Code and regulations
thereunder.
All distributions shall be made in a lump sum.
6.6 Designation of Beneficiary. Each Participant or Former Participant
(or beneficiary thereof) from time to time may designate any person or persons
(who may be designated contingently or successively and who may be an entity
other than a natural person) as his Beneficiary or Beneficiaries to whom his
Plan benefits are to be paid if he dies before receipt of all such benefits.
Each Beneficiary designation shall be made on a form prescribed by the Committee
and will be effective only when filed with it during the Participant's or Former
Participant's lifetime. Each Beneficiary designation filed with the Committee
will cancel all Beneficiary designations previously filed with it by that
Participant or Former Participant. The revocation of a Beneficiary designation,
no matter how effected, shall not require the consent of any designated
Beneficiary.
If any Participant or Former Participant fails to designate a
Beneficiary in the manner provided above, or if the Beneficiary designated dies
before such Participant's or Former Participant's death or before complete
distribution of the Participant's or Former Participant's benefits, such
Participant's or Former Participant's benefits shall be paid in the following
order of priority: first, to the Participant's or Former Participant's surviving
spouse, if any; second, to the Participant's or Former Participant's surviving
children, if any, in equal shares; third, to the estate of the last to die of
such Participant or Former Participant and his Beneficiary or Beneficiaries.
Notwithstanding the foregoing, the surviving spouse of a Participant or
Former Participant shall be deemed to be the Participant's or Former
Participant's designated Beneficiary, and shall be entitled to receive any
distribution on account of the Participant's or Former Participant's death in a
lump sum, unless the Participant or Former Participant designates a Beneficiary
other than the surviving spouse and such surviving spouse consents irrevocably
in writing to the designation of such alternate Beneficiary and the Spouse's
consent acknowledges the effect of such designation and is witnessed by a notary
public or a member of the Committee.
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The requirements of this paragraph may be waived if it is established to the
satisfaction of the Committee that the consent may not be obtained because there
is no Spouse or because the Spouse cannot be located or because of such other
circumstances as may be prescribed by regulation.
6.7 Information Required from Beneficiary. If at, after or during the
time when a benefit is payable to any Beneficiary, the Committee upon request of
the Trustee or at its own instance, delivers by registered or certified mail to
the Beneficiary at the Beneficiary's last known address a written demand for his
then address, or for satisfactory evidence of his continued life, or both, and,
if the Beneficiary fails to furnish the information to the Committee within
three years from the mailing of the demand, then the Committee shall distribute
to the party next entitled thereto under Section 6.7 above as if the Beneficiary
were then deceased.
6.8 In-Service Withdrawals:
(a) Non-Hardship.
(1) A Participant may elect to withdraw an amount
equal to all or any part of his interest in his Rollover Account, including
earnings, for any reason.
(2) Upon attainment of age 59 1/2, a Participant may
elect to withdraw all or any portion of his interest in his Pre-Tax Contribution
Account.
(b) Hardship. On account of financial hardship, as defined
below, a Participant may make a withdrawal from his Pre-Tax Contribution Account
attributable to all of his Pre-Tax Contributions only (as of the last completed
valuation).
(c) Procedures:
(1) The amount available for withdrawal shall be based
on the most recently completed monthly valuation and shall be withdrawn on a
prorata basis from the investment funds in which the underlying contributions
are invested.
The amount charged against a Participant's Pre-Tax Contribution Account
and/or Rollover Account shall be based on the value of Company Stock or value of
other investment funds determined as of a date as close as administratively
feasible to the date of payment.
(2) The existence of a financial hardship and the
amount necessary to meet such hardship, shall be determined by the Committee in
accordance with the
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<PAGE>
rules set forth below. Notwithstanding the foregoing, a hardship withdrawal by a
Participant hereunder may not include any amounts attributable to "qualified
non-elective" contributions as defined under Section 1165(e) of the Code.
An immediate and heavy financial need shall be limited to a need for
funds for any of the following purposes:
(A) medical expenses described in Section
1023(aa)(2)(P) of the Code and incurred by the Participant, his Spouse, or any
of the Participant's dependents (as defined in Section 1025 of the Code), or
expenses necessary for these individuals to obtain medical care described in
Section 1023(aa)(2)(P) of the Code, as long as such expenses are ineligible for
reimbursement under any health care plans;
(B) costs directly related to the purchase
(excluding mortgage payments) of a principal residence of the Participant;
(C) the payment of tuition, related
educational fees, and room and board expenses for the next 12 months of
post-secondary education for the employee, or the Participant's Spouse,
children, or dependents (as defined in Section 1025 of the Code); or
(D) payments necessary to prevent the eviction
of the Participant from his principal residence or foreclosure on the mortgage
of the Participant's principal residence.
(3) If the following criteria are met, the Participant
will be deemed to have a financial need for a hardship withdrawal to be made:
(A) the distribution is not in excess of the amount of the immediate and heavy
financial need of the Participant including any associated taxes or penalties;
and (B) the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the Employer or any Affiliate.
(4) Following payment of any hardship distribution to
a Participant hereunder, such Participant may not make Pre-Tax Contributions
(and the Participant shall be precluded from making any employee contributions
to all other plans maintained by the
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Employer as defined in Article
1165-8(d)(2)(B)(III) of the regulations issued under the Code), during the
twelve calendar months immediately following the effective date of such hardship
withdrawal. A Participant may reenroll in the Plan as of the next Entry Date
following the suspension period. In addition, the Participant may not make any
Pre-Tax Contributions to the Plan for the Participant's taxable year immediately
following the taxable year of the hardship withdrawal, in excess of the
applicable limit under Section 1165(e)(7) of the Code for such next taxable year
less the amount of such Participant's Pre-Tax Contributions for the taxable year
of the hardship distribution. A similar suspension shall apply if any
Participant receives a hardship withdrawal under any other tax-qualified plan
maintained by the Employer or any Affiliate in respect of which such a
suspension penalty applies. Suspension of a Participant's eligibility to make
Pre-Tax Contributions under this Plan shall have no effect on the Participant's
right to receive Matching Contributions with respect to Pre-Tax Contributions
made before or after the suspension period.
6.9 Loans to Participants. The Committee may direct the Trustee to lend
a Participant an amount not in excess of the lesser of (i) 50% of his vested
Accounts, determined as of the most recently completed monthly valuation; or
(ii) $50,000 (reduced by the excess, if any, of the highest outstanding balances
of all other loans from the Plan during the one-year period ending on the day
before the loan was made over the outstanding balance of loans from the plan on
the date on which such loan was made). Notwithstanding the foregoing, a
Participant may have only one loan outstanding at any time. Subject to the rules
of the Committee set forth below, the Trustee, upon application by a
Participant, may make a loan to such Participant for any reason. In addition to
such rules as the Committee may adopt, all loans shall comply with the following
terms and conditions:
(a) An application by a Participant for a loan from the Plan
shall be made in writing to the Committee (on a form prescribed by it) whose
action thereon shall be final.
(b) The period of repayment for any loan shall be arrived at by
mutual agreement between the Committee and the borrower, but such period in no
event shall exceed five years. Repayment of interest and principal shall
commence at the discretion of the
26
<PAGE>
Committee, but in no event later than the first day of the third month
commencing after the loan was received by the Participant. Repayment of interest
and principal shall be according to a substantially level amortization schedule
of payments. Payment of interest and principal shall be by payroll deduction.
After 26 bi-weekly repayments are made, a Participant may elect to prepay the
remaining balance of his loan in one lump sum payment.
(c) Each loan shall be made against collateral being the
assignment of the borrower's right, title and interest in and to the Trust Fund
to the extent of the borrowed amount supported by the borrower's collateral
promissory note for the amount of the loan, including interest, payable to the
order of the Trustee.
(d) Each loan shall bear an interest rate determined in the
discretion of the Committee, which rate shall be intended to be commensurate
with current fixed rates charged by institutions in the business of lending
money for similar types of loans.
(e) The minimum amount available for any loan is $500.00.
(f) The procedure to be followed by a Participant in applying
for a loan shall be determined by the Committee and documented by a duly
approved resolution of the Committee. Such resolution shall be attached to and
shall be deemed to be a part of the Plan.
(g) Notwithstanding anything herein to the contrary, the
Committee may direct the Trustee to lend a Former Participant who is a "party in
interest" as that term is defined in Section 3(14) of ERISA, an amount not to
exceed the amount set forth in the first paragraph of this Section 6.9, but only
to the extent required by ERISA. If the Committee directs the Trustee to make a
loan to a Former Participant, the rules set forth in Section 6.9 shall apply to
such loan, provided, however, that repayment of such loan shall not be by
payroll deduction. Repayment shall be made by the Former Participant by check,
payable to the Trustee, based on a monthly repayment schedule established by the
Committee when the Former Participant makes application for the loan.
(h) In the event of (i) default on the loan or (ii) the
Participant's Termination of employment prior to repayment of the entire loan
balance, the Participant shall have the option to repay the remaining loan
balance in full as soon as the necessary paperwork shall be processed. If the
loan is not repaid, the Participant shall have the option to continue to
27
<PAGE>
repay the loan as a Former Participant in accordance with the rules and
procedures determined by the Committee. If repayment is not made or in the event
of default, and a Participant does not elect to repay his loan in full, there
shall be distributed to the Participant upon his Termination of employment the
sum of (i) the value of the Participant's Accounts, without regard to the amount
of any outstanding loan (including any accrued interest thereon) plus (ii) the
Participant's promissory note. Default means a Participant's failure to repay
the loan when due in accordance with the procedures outlined in subsection (b)
hereof.
(i) Loans shall be processed from a Participant's Accounts in
the following order on a prorata basis from the funds in which invested:
(1) Rollover Account;
(2) Pre-Tax Contribution Account;
(3) Matching Contribution Account.
(j) The amount charged against a Participant's Pre-Tax
Contribution Account, Rollover Account or Matching Contribution Account shall be
based on the value of Company Stock or value of other investment funds
determined as of a date as close as administratively feasible to the date the
loan is paid to the Participant.
(k) Repayments shall be in reverse order to the order set forth
in subsection (i) and invested according to a Participant's current investment
elections.
(l) A Participant who becomes ineligible to participate in the
Plan because the individual transfers employment to an Affiliate or is no longer
a bona fide resident of Puerto Rico, but has not Terminated employment, shall
continue to be able to make loans from the Plan in accordance with this Section
6.9. Such a Participant shall be treated as a "party in interest" pursuant to
subsection (g) hereof.
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VII: Trust Fund
- --------------------------------------------------------------------------------
7.1 Exclusive Benefit of Employees and Beneficiaries. All contributions
under this Plan shall be paid to the Trustee and deposited in the Trust Fund.
All assets of the Trust Fund, including investment Income, shall be retained for
the exclusive benefit of Participants, Former Participants and Beneficiaries and
shall be used to pay benefits to such persons or to pay administrative expenses
of the Plan and Trust Fund to the extent not paid by the Employer. Except as
provided in Section 4.3 or 12.2, the assets of the Trust Fund shall not revert
to or inure to the benefit of the Employer.
7.2 Investment Directions by Participants. A Participant or Former
Participant may direct the investment of amounts held under his Pre-Tax
Contribution Account and Rollover Account in multiples of ten percent (10%)
subject to the approval of the Committee and in accordance with the terms,
conditions and procedures established by the Committee. Notwithstanding Sections
5.2(a) and 8.4, all earnings and expenses, including commissions and transfer
taxes, realized or incurred in connection with any investments pursuant to a
Participant's or Former Participant's directions shall be credited or charged to
the Participant's or Former Participant's account for which the investment is
made. If a Participant or Former Participant exercises his option to direct the
investment of his Pre-Tax Contribution Account and Rollover Account, then to the
extent permitted by ERISA no person who is otherwise a fiduciary under the Plan
shall be liable under ERISA for any loss, or by reason of any breach which
results from such Participant's exercise of such option. The funds available for
this purpose shall include the Company Stock fund and at least three other
additional funds. A Participant may elect to change the investment (both future
and existing contributions) of his Accounts effective as of the first day of any
Calendar Quarter following written notification to the Committee (using the
value of Accounts determined as of the last business day of the immediately
preceding Calendar Quarter).
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7.3 Investment of Matching Contributions.
(a) The Trustee shall invest all Matching Contributions in the
Company Stock fund.
(b) All dividends or other distributions with respect to the
Company Stock fund shall be applied to purchase additional Company Stock.
(c) The Trustee may acquire Company Stock from any source,
including the public market, in private transactions, the trustee of The Pep
Boys-- Manny, Moe & Jack Flexitrust, or, if the Company agrees, from the Company
(from either treasury shares or authorized but unissued shares). If the Trustee
purchases Common Stock from the Company, the purchase price shall be the mean
between the highest and lowest quoted selling prices of the Common Stock on the
New York Stock Exchange on the date of purchase, except as provided at
subsection (e).
(d) A Participant or Former Participant who has satisfied the
age requirement for an Early Retirement Date may irrevocably elect in writing on
a form provided by the Committee that all future Matching Contributions
allocable to him after the Valuation Date following timely delivery of his
election be invested in the investment category established by the Committee,
which in the opinion of the Committee, provides the highest degree of protection
for principal and a reasonable rate of return consistent with the objective of
preservation of principal. In that case, the portion of the Participant's or
Former Participant's Matching Contribution Account invested in Company Stock
shall be liquidated in eight installments, each equal to one-eighth of the
number of shares of Company Stock allocated to his Matching Contribution
Account, as of eight quarterly Valuation Dates next following the Participant's
or Former Participant's election. The proceeds shall be deposited in the
investment category designed to protect principal. A Participant or Former
Participant may not subsequently transfer Matching Contributions back into the
Company Stock fund.
(e) To the extent the Matching Contribution must be invested in
Company Stock, the Company shall make the contribution in Company Stock rather
than cash. Each share of Company Stock contributed shall be valued for purposes
of determining the number of shares to be contributed at the average of the mean
between the highest and lowest
30
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quoted selling prices of the Common Stock on the New York Stock Exchange
for each day in the last ten business days of December of the Plan Year for
which the contribution is made.
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VIII: Administration
- -------------------------------------------------------------------------------
8.1 Duties and Responsibilities of Fiduciaries; Allocation of
Responsibility Among Fiduciaries for Plan and Trust Administration. A Fiduciary
shall have only those specific powers, duties, responsibilities and obligations
as are specifically given him under this Plan or the Trust. In general, the
Employer, shall have the sole responsibility for making the contributions
provided for under Section 6.1. The Board of Directors shall have the sole
authority to appoint and remove the Trustee and the Committee and to amend or
terminate, in whole or in part, this Plan or the Trust. The Committee shall have
the sole responsibility for the administration of this Plan, which
responsibility is specifically described in this Plan and the Trust. The
Committee also shall have the right to appoint and remove any Investment Manager
which may be provided for under the Trust and to designate investment and
funding policies under which the Trustee and any Investment Manager shall act,
which provisions are described in Section 8.10. Except as provided in the Trust
Agreement and within the scope of any funding and investment policies designated
by the Committee the Trustee shall have the sole responsibility for the
administration of the Trust and the management of the assets held under the
Trust. It is intended that each Fiduciary shall be responsible for the proper
exercise of his own powers, duties, responsibilities and obligations under this
Plan and the Trust and generally shall not be responsible for any act or failure
to act of another Fiduciary. A Fiduciary may serve in more than one fiduciary
capacity with respect to the Plan (including service both as Trustee and as a
member of the Committee).
8.2 Allocation of Duties and Responsibilities. The Committee shall be
appointed by the Board of Directors and shall have the sole responsibility for
actual administration of the Plan, as delegated by the Board of Directors. The
Committee may also adopt amendments to the Plan, which upon advice of counsel,
it deems necessary or advisable to comply with ERISA or the Code, or any other
applicable law, or to facilitate the administration of the Plan. The Committee
may designate persons other than their members to carry out any of its duties
and responsibilities. Any duties and responsibilities thus allocated must be
described in
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the written instrument. If any person other than an Eligible
Employee of the Employer is so designated, such person must acknowledge in
writing his acceptance of the duties and responsibilities thus allocated to him.
All such instruments shall be attached to, and shall be made a part of, the
Plan.
8.3 Administration and Interpretation. Subject to the limitations of the
Plan, the Committee shall have complete authority and control regarding the
administration and interpretation of the Plan and the transaction of its
business, and shall, from time to time, establish such rules as may be necessary
or advisable in connection therewith. To the extent permitted by law, all acts
and determinations of the Committee, as to any disputed question or otherwise,
shall be binding and conclusive upon Participants, Former Participants,
Employees, Spouses, Beneficiaries and all other persons dealing with the Plan.
The Committee may deem its records conclusively to be correct as to the matters
reflected therein with respect to information furnished by an Employee. All
actions, decisions and interpretations of the Committee in administering the
Plan shall be performed in a uniform and nondiscriminatory manner.
8.4 Expenses. The Employer shall pay all expenses authorized and
incurred by the Committee in the administration of the Plan except to the extent
such expenses are paid from the Trust.
8.5 Claims Procedure:
(a) Filing of Claim. Any Participant, Former Participant or
Beneficiary under the Plan ("Claimant"), may file a written claim for a Plan
benefit with the Committee or with a person named by the Committee to receive
claims under the Plan.
(b) Notification on Denial of Claim. In the event of a denial
or limitation of any benefit or payment due to or requested by any Claimant, he
shall be given a written notification containing specific reasons for the denial
or limitation of his benefit. The written notification shall contain specific
reference to the pertinent Plan provisions on which the denial or limitation of
benefits is based. In addition, it shall contain a description of any additional
material or information necessary for the Claimant to perfect a claim and an
explanation of why such material or information is necessary. Further, the
notification shall provide appropriate information as to the steps to be taken
if the Claimant wishes to submit his
33
<PAGE>
claim for review. This written notification
shall be given to a Claimant within 90 days after receipt of his claim by the
Committee unless special circumstances require an extension of time to process
the claim. If such an extension of time for processing is required, written
notice of the extension shall be furnished to the Claimant prior to the
termination of said 90-day period and such notice shall indicate the special
circumstances which make the postponement appropriate. Such extension shall not
extend to a date later than 120 days after receipt of the request for review of
a claim.
(c) Right of Review. In the event of a denial or limitation of
benefits, the Claimant or his duly authorized representative shall be permitted
to review pertinent documents and to submit to the Committee issues and comments
in writing. In addition, the Claimant or his duly authorized representative may
make a written request for a full and fair review of his claim and its denial by
the Committee provided, however, that such written request must be received by
the Committee (or his delegate to receive such requests) within sixty days after
receipt by the Claimant of written notification of the denial or limitation of
the claim. The sixty day requirement may be waived by the Committee in
appropriate cases.
(d) Decision on Review.
(i) A decision shall be rendered by the Committee
within 60 days after the receipt of the request for review, provided that where
special circumstances require an extension of time for processing the decision,
it may be postponed on written notice to the Claimant (prior to the expiration
of the initial 60 day period), for an additional 60 days, but in no event shall
the decision be rendered more than 120 days after the receipt of such request
for review.
(ii) Notwithstanding subparagraph (i), if the
Committee specifies a regularly scheduled time at least quarterly to review such
appeals, a Claimant's request for review will be acted upon at the specified
time immediately following the receipt of the Claimant's request unless such
request is filed within 30 days preceding such time. In such instance, the
decision shall be made no later than the date of the second specified time
following the Committee's receipt of such request. If special circumstances
(such as a need to hold a hearing) require a further extension of time for
processing a request, a decision shall be rendered
34
<PAGE>
not later than the third specified time of the Committee following the receipt
of such request for review and written notice of the extension shall be
furnished to the Claimant prior to the commencement of the extension.
(iii) Any decision by the Committee shall be furnished
to the Claimant in writing and in a manner calculated to be understood by the
Claimant and shall set forth the specific reason(s) for the decision and the
specific Plan provision(s) on which the decision is based.
8.6 Records and Reports. The Committee shall exercise such authority and
responsibility as it deems appropriate in order to comply with ERISA and
governmental regulations issued thereunder relating to records of Participants'
account balances and the percentage of such account balances which are
nonforfeitable under the Plan; notifications to Participants; and annual reports
and registration with the Internal Revenue Service and/or Puerto Rico Department
of the Treasury, as applicable.
8.7 Other Powers and Duties. The Committee shall have such duties and
powers as may be necessary to discharge its duties hereunder, including, but not
by way of limitation, the following:
(a) to construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment of any benefits
hereunder;
(b) to prescribe procedures to be followed by Participants,
Former Participants or Beneficiaries filing applications for benefits;
(c) to prepare and distribute information explaining the Plan;
(d) to receive from the Employer and from Participants, Former
Participants and Beneficiaries such information as shall be necessary for the
proper administration of the Plan;
(e) to furnish the Employer, upon request, such annual reports
with respect to the administration of the Plan as are reasonable and
appropriate;
(f) to receive, review and keep on file (as it deems convenient
or proper) reports of the financial condition, and of the receipts and
disbursements, of the Trust Fund from the Trustees;
35
<PAGE>
(g) to appoint or employ advisors including legal counsel to
render advice with regard to any responsibility of the Committee under the Plan
or to assist in the administration of the Plan; and
(h) to determine the status of qualified domestic relations
orders under Section 206(d) of ERISA.
The Committee shall have no power to add to, subtract from or modify any
of the terms of the Plan, or to change or add to any benefits provided by the
Plan, or to waive or fail to apply any requirements of eligibility for a benefit
under the Plan.
8.8 Rules and Decisions. The Committee may adopt such rules as it deems
necessary, desirable, or appropriate. All rules and decisions of the Committee
shall be applied uniformly and consistently to all Participants in similar
circumstances. When making a determination or calculation, the Committee shall
be entitled to rely upon information furnished by a Participant, Former
Participant or Beneficiary, the Employer, the legal counsel of the Employer, or
the Trustee.
8.9 Authorization of Benefit Payments. The Committee shall issue proper
directions to the Trustee concerning all benefits which are to be paid from the
Trust Fund pursuant to the provisions of the Plan.
8.10 Application and Forms for Benefits. The Committee may require a
Participant, Former Participant or Beneficiary to complete and file with it an
application for a benefit, and to furnish all pertinent information requested by
it. The Committee may rely upon all such information so furnished to it,
including the Participant's, Former Participant's or Beneficiary's current
mailing address.
8.11 Facility of Payment. Whenever, in the Committee's opinion, a person
entitled to receive any payment of a benefit or installment thereof hereunder is
under a legal disability or is incapacitated in any way so as to be unable to
manage his financial affairs, the Committee may direct the Trustee to make
payments to such person or to his legal representative or to a relative or
friend of such person for his benefit, or he may direct the Trustee to apply the
payment for the benefit of such person in such manner as it considers advisable.
36
<PAGE>
8.12 Investment Policies. The investment policies of the Plan shall be
established and may be changed at any time by the Committee, which shall
thereupon communicate such policies to any persons having authority to manage
the Plan's assets. The Investment Manager shall have the authority to invest in
any collective investment fund maintained exclusively for the investment of
assets of exempt, qualified employee benefit trusts. The assets so invested
shall be subject to all the provisions of the instrument establishing such
collective investment fund, as amended from time to time, which is hereby
incorporated herein by reference and deemed to be an integral part of the Plan
and corresponding Trust.
The Committee, whose membership is to be determined by the Board of
Directors, is the named fiduciary to act on behalf of the Company in the
management and control of the Plan assets and to establish and carry out a
funding policy consistent with the Plan objectives and with the requirements of
any applicable law. The Committee shall carry out the Company's responsibility
and authority:
(a) To appoint as such term is defined in Section 3(38) of
ERISA, one or more persons to serve as Investment Manager with respect to all or
part of the Plan assets, including assets maintained under separate accounts of
an insurance company.
(b) To allocate the responsibilities and authority being
carried out by the Committee among the members of the Committee.
(c) To take any action appropriate to assure that the Plan
assets are invested for the exclusive purpose of providing benefits to
Participant and their Beneficiaries in accordance with the Plan and defraying
reasonable expenses of administering the Plan, subject to the requirements of
any applicable law.
(d) To establish any rules it deems necessary. The Committee
including each member and former member to whom duties and responsibilities have
been allocated, may be indemnified and held harmless by the Employer with
respect to any breach of alleged responsibilities performed or to be performed
hereunder.
8.13 Indemnification. The Employer shall indemnify each individual who
is an officer, director or Employee of the Employer and who may be called upon
or designated to perform fiduciary duties or to exercise fiduciary authority or
responsibility with respect to the
37
<PAGE>
Plan and shall save and hold him harmless from any and all claims, damages, and
other liabilities, including without limitation all expenses (including
attorneys' fees and costs), judgments, fines and amounts paid in settlement and
actually and reasonably incurred by him in connection with any action, suit or
proceeding, resulting from his alleged or actual breach of such duties,
authority or responsibility, whether by negligence, gross negligence or
misconduct, to the maximum extent permitted by law, provided, however, that this
indemnification shall not apply with respect to any actual breach of such
duties, authority or responsibility, if the individual concerned did not act in
good faith and in the manner he reasonably believed to be in (or not opposed to)
the best interest of the Employer, or, with respect to any criminal action or
proceeding, had reasonable cause to believe his conduct was unlawful.
8.14 Resignation or Removal of the Committee. An Committee member may
resign at any time by giving ten days' written notice to the Employer and the
Trustee. The Board of Directors may remove any member of the Committee by giving
written notice to him and the Trustee. Any such resignation or removal shall
take effect at a date specified on such notice, or upon delivery to the
Committee if no date is specified.
38
<PAGE>
- --------------------------------------------------------------------------------
IX: Miscellaneous
- --------------------------------------------------------------------------------
9.1 Nonguarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Employer and any Employee, or
as a right of any Employee to be continued in the employment of the Employer, or
as a limitation of the right of the Employer to discharge any of its Employees,
with or without cause.
9.2 Rights to Trust Assets. No Employee or Beneficiary shall have any
right to, or interest in, any assets of the Trust Fund upon Termination of his
employment or otherwise, except as provided from time to time under this Plan,
and then only to the extent of the benefits payable under the Plan to such
Employee out of the assets of the Trust Fund. All payments of benefits as
provided for in this Plan shall be made solely out of the assets of the Trust
Fund.
9.3 Nonalienation of Benefits. Except as may be permitted by law, and
except as may be required or permitted by a qualified domestic relations order
as defined in Section 206(d) of ERISA or pursuant to a Plan loan pursuant to
Section 6.9, benefits payable under this Plan shall not be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, including any such liability which is for alimony or other payments
for the support of a spouse or former spouse, or for any other relative of the
Employee, prior to actually being received by the person entitled to the benefit
under the terms of the Plan; and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any right to
benefits payable hereunder shall be void. Notwithstanding the preceding
sentence, benefits payable under the Plan may be used to offset an amount that
the Participant is ordered or required to pay to the Plan if the order or
judgment to pay arises under (a) a criminal conviction; (b) a civil judgment
pursuant to a violation or alleged violation of part 4 of subtitle B of ERISA;
or (c) pursuant to a settlement agreement between the United States Secretary of
Labor and the Participant or Former Participant in connection with a violation
or alleged violation in part 4 of subtitle B of Title I of ERISA by a fiduciary
or any other such person. The applicable judgment, order, decree or settlement
agreement must expressly provide for the offset of such benefits.
39
<PAGE>
The Trust Fund shall not in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person entitled to
benefits hereunder.
9.4 Discontinuance of Employer Contributions. In the event of permanent
discontinuance of contributions to the Plan by the Employer, the Accounts of all
Participants shall, as of the date of such discontinuance, shall continue to be
fully-vested and nonforfeitable.
40
<PAGE>
- --------------------------------------------------------------------------------
X: Amendments And Action By Employer
- --------------------------------------------------------------------------------
10.1 Amendments Generally. The Company reserves the right to make from
time to time any amendment or amendments to this Plan or Trust which do not
cause any part of the Trust Fund to be used for, or diverted to, any purpose
other than the exclusive benefit of Participants, Former Participants or their
Beneficiaries; provided, however, that the Company may make any amendment it
determines necessary or desirable, with or without retroactive effect, to comply
with ERISA.
No amendment to the Plan shall decrease a Participant's Accounts or
eliminate an optional form of distribution except as may be permitted by the
Code or ERISA.
10.2 Amendments to Vesting Schedule. Any amendment to the Plan which
alters the vesting provisions set forth in Section 6.3 shall be deemed to
include the following terms:
(a) The vested percentage of a Participant in that portion of
his Accounts under the Plan derived from Employer contributions made for Plan
Years ending with or within the later of the date such amendment is adopted or
the date such amendment becomes effective shall not be reduced; and
(b) Each Participant having not less than three years of
service at the later of the date such amendment was effective shall be permitted
to elect irrevocably to have his vested percentage computed under the Plan
without regard to such amendment. Such election must be made within 60 days from
the later of (i) the date the amendment was adopted, (ii) the date the amendment
became effective, or (iii) the date the Participant is issued written notice of
such amendment by the Committee.
Notwithstanding the preceding sentence, no election need be provided for
any Participant whose nonforfeitable percentage in his Accounts derived from
Employer contributions under the Plan, as amended at any time, cannot be less
than such percentage determined without regard to such amendment.
41
<PAGE>
10.3 Action by Company. Any action by the Company under this Plan shall
be by a duly adopted resolution of the Board of Directors, or by any person or
persons duly authorized by a duly adopted resolution of that Board to take such
action. Any company that has adopted this Plan with approval of the Board of
Directors shall be deemed, by the continuing participation of such company in
the Plan to accept any action of the Board of Directors.
42
<PAGE>
- --------------------------------------------------------------------------------
XI: Successor Employer And Merger Or
Consolidation Of Plans
- --------------------------------------------------------------------------------
11.1 Successor Employer. In the event of the dissolution, merger,
consolidation or reorganization of the Employer, provision may be made by which
the Plan and Trust will be continued by the successor; and, in that event, such
successor shall be substituted for the Employer under the Plan. The substitution
of the successor shall constitute an assumption of Plan liabilities by the
successor, and the successor shall have all of the powers, duties and
responsibilities of the Employer under the Plan.
11.2 Plan Assets. There shall be no merger or consolidation of the Plan
with, or transfer of assets or liabilities of the Trust Fund to, any other plan
of deferred compensation maintained or to be established for the benefit of all
or some of the Participants of the Plan, unless each Participant would (if
either this Plan or the other plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer which is equal to or
greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (if this Plan had then terminated),
and unless a duly adopted resolution of the Board of Directors of the Company
authorizes such merger, consolidation or transfer of assets.
43
<PAGE>
- --------------------------------------------------------------------------------
XII: Plan Termination
- --------------------------------------------------------------------------------
12.1 Right to Terminate. In accordance with the procedures set forth
herein, the Company may terminate the Plan at any time in whole or in part. A
distribution may not be made from the Plan due to the termination of the Plan if
the Employer established or maintains a successor. To the extent permitted by
Section 1165 of the Code and regulations thereunder, in the event of the
dissolution, merger, consolidation or reorganization of the Employer, the Plan
shall terminate and the Trust Fund shall be liquidated unless the Plan is
continued by a successor to the Employer in accordance with Section 11.1.
12.2 Liquidation of the Trust Fund. Upon the complete or partial
termination of the Plan, the Accounts of all Participants affected thereby shall
become fully vested and nonforfeitable, to the extent funded, and the Committee
shall direct the Trustee to distribute the assets remaining in the Trust Fund,
after payment of any expenses properly chargeable thereto, to Participants,
Former Participants and Beneficiaries in proportion to their respective Account
balances.
12.3 Manner of Distribution. To the extent that no discrimination in
value results, any distribution after termination of the Plan may be made, in
whole or in part, in cash, or in securities or other assets in kind, as the
Committee may determine. All non-cash distributions shall be valued at fair
market value at date of distribution.
<PAGE>
<TABLE>
<CAPTION>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11 - Computation of Earnings per Share
(in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1997 Fiscal 1996 Fiscal 1995
------------------------------- ----------------------------- --------------------------------
Earnings Shares Per Earnings Shares Per Earnings Shares Per
(Num- (Denom- Share (Num- (Denom- Share (Num- (Denom- Share
erator) inator) Amount erator) inator) Amount erator) inator) Amount
------- ------- ------ ------- ------- ------ ------- ------- ------
Basic EPS
Earnings available to
common stockholders $49,611 61,133 $0.81 $100,824 60,305 $1.67 $81,494 59,581 $1.37
===== ===== =====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax - - 2,168 2,104 2,200 2,104
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - - 1,409 1,303 - -
Common Shares assumed
issued upon exercise of
dilutive stock options - 524 - 893 - 903
------- ------ -------- ------ ------- ------
Diluted EPS
Earnings available to common
stockholders assuming
conversion $49,611 61,657 $0.80 $104,401 64,605 $1.62 $83,694 62,588 $1.34
======= ====== ===== ======== ====== ===== ======= ====== =====
(Table Restubbed Below)
(in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------
Fiscal 1994 Fiscal 1993
-----------------------------------------------------------------
Earnings Shares Per Earnings Shares Per
(Num- (Denom- Share (Num- (Denom- Share
erator) inator) Amount erator) inator) Amount
------- ------- ------ ------- ------- ------
Basic EPS
Earnings available to
common stockholders $ 75,708(1) 59,252 $1.28(1) $65,512 60,805 $1.08
===== =====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax 897 873 - -
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - - - -
Common Shares assumed
issued upon exercise of
dilutive stock options - 1,313 - 1,086
------- ------ -------- ------
Diluted EPS
Earnings available to common
stockholders assuming
conversion $ 76,605(1) 61,438 $1.25(1) $65,512 61,891 $1.06
======= ====== ===== ======= ====== =====
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes a $4,300, or $.07 per share charge, from the cumulative effect of
an accounting change for postemployment benefits. Basic earnings and basic
earnings per share before the accounting change was $80,008 and $1.35,
respectively. Diluted earnings and diluted earnings per share before the
accounting change was $80,905 and $1.32, respectively.
<PAGE>
<TABLE>
<CAPTION>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 12 - Statement Regarding Computation
of Ratios of Earnings to Fixed Charges
(in thousands, except ratios)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 31, February 1, February 3,
Fiscal year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
Interest $ 39,656 $ 30,306 $ 32,072
Interest factor in rental expense 16,368 11,205 7,743
Capitalized interest 1,861 1,575 1,407
- ---------------------------------------------------------------------------------------------------------------------
(a) Fixed charges, as defined $ 57,885 $ 43,086 $ 41,222
Earnings before income taxes and
cumulative effect of change in
accounting principle $ 75,456 $ 159,229 $ 129,452
Fixed charges 57,885 43,086 41,222
Capitalized interest (1,861) (1,575) (1,407)
- ---------------------------------------------------------------------------------------------------------------------
(b) Earnings, as defined $ 131,480 $ 200,740 $ 169,267
- ---------------------------------------------------------------------------------------------------------------------
(c) Ratio of earnings to fixed charges (b/a) 2.3x 4.7x 4.1x
- ---------------------------------------------------------------------------------------------------------------------
(Table Restubbed Below)
(in thousands, except ratios)
- ---------------------------------------------------------------------------------------
January 28, January 29,
Fiscal year 1995 1994
- ---------------------------------------------------------------------------------------
Interest $ 25,931 $ 19,701
Interest factor in rental expense 6,157 5,595
Capitalized interest 1,850 1,254
- ---------------------------------------------------------------------------------------
(a) Fixed charges, as defined $ 33,938 $ 26,550
Earnings before income taxes and
cumulative effect of change in
accounting principle $ 126,482 $ 104,508
Fixed charges 33,938 26,550
Capitalized interest (1,850) (1,254)
- ---------------------------------------------------------------------------------------
(b) Earnings, as defined $ 158,570 $ 129,804
- ---------------------------------------------------------------------------------------
(c) Ratio of earnings to fixed charges (b/a) 4.7x 4.9x
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE COMPANY
WHERE % OF SHARES
NAME INCORPORATED OWNED
- ---- ------------ -----
<S> <C> <C>
The Pep Boys-Manny, Moe & Jack
of California
3111 W. Allegheny Avenue
Philadelphia, PA 19132 California 100%
Pep Boys- Manny, Moe & Jack
of Delaware, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132 Delaware 100%
Pep Boys- Manny, Moe & Jack
of Puerto Rico, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132 Delaware 100%
Colchester Insurance Company
7 Burlington Square
Burlington, VT 05401 Vermont 100%
PBY Corporation
Suite 946
1105 North Market Street
Wilmington, DE 19899 Delaware 100%
Carrus Supply Corporation
1013 Centre Road
Wilmington, DE 19805 Delaware 100%
</TABLE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Numbers
2-81733, 33-3420, 33-31765, 33-64248, 33-35592, 33-61429, 33-32857 and 333-40363
of The Pep Boys - Manny, Moe & Jack and subsidiaries on Forms S-8 and
Registration Statement Number 333-45793 of The Pep Boys - Manny, Moe & Jack and
subsidiaries on Form S-3 of our report dated March 19, 1998, appearing in the
Annual Report on Form 10-K of The Pep Boys - Manny, Moe & Jack and subsidiaries
for the year ended January 31, 1998.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1998 AND THE CONSOLIDATED STATEMENT
OF EARNINGS FOR THE FIFTY-TWO WEEK PERIOD ENDED JANUARY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 10,811
<SECURITIES> 0
<RECEIVABLES> 13,335
<ALLOWANCES> 265
<INVENTORY> 655,363
<CURRENT-ASSETS> 770,216
<PP&E> 1,780,931
<DEPRECIATION> 403,182
<TOTAL-ASSETS> 2,161,360
<CURRENT-LIABILITIES> 618,876
<BONDS> 646,641
0
0
<COMMON> 63,658
<OTHER-SE> 758,977
<TOTAL-LIABILITY-AND-EQUITY> 2,161,360
<SALES> 1,720,670
<TOTAL-REVENUES> 2,056,520
<CGS> 1,246,431
<TOTAL-COSTS> 1,516,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,656
<INCOME-PRETAX> 75,456
<INCOME-TAX> 25,845
<INCOME-CONTINUING> 49,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,611
<EPS-PRIMARY> .81
<EPS-DILUTED> .80
</TABLE>
